the brussels effect. bradford
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The Brussels Effect. BradfordTRANSCRIPT
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COLUMBIA LAW SCHOOL
FALL 2011 THURSDAY FACULTY WORKSHOP SERIES
Thursday, November 17, 2011
Anu Bradford
Presents
“THE BRUSSELS EFFECT”
Case Lounge, Jerome Greene Hall Catered Lunch to begin at 12:00 p.m. Presentation to begin at 12:15 p.m.
Discussion to follow until 1:10 p.m.; informal conversation until 1:30 p.m.
Electronic copies of the papers are available online at http://www.law.columbia.edu/faculty/fac_resources/faculty_lunch/fall11
Please contact Lauren Schaefer for special dietary requests: ext.4-5334, [email protected] For extra copies or other questions, please contact Rachel Jones: 4-7594, [email protected]
Date
Presenter
Paper
September 8 Robert Ferguson Immigration Law and the Immigrant Novel
15 Yair Listokin Taxation and Marriage: A Reappraisal
22 Olati Johnson Beyond the Private Attorney General: Equality Directives in American Law
29 No workshop, Rosh Hashanah
N/A
October 6 Alex Raskolnikov Accepting the Limits of Tax Law and Economics
13
Benjamin Liebman Law in the Shadow of Protest: Medical Malpractice Litigation in China
20 Bert Huang
Trial By Preview
27
Henry Monaghan On Avoiding Avoidance, Agenda Control, and Related Matters
November 3 Curtis Milhaupt We are the (National) Champions: Understanding the Mechanisms of State Capitalism in China
10 George Bermann Navigating European Union Law and the Law of International Arbitration
17 Anu Bradford THE BRUSSELS EFFECT
24 No workshop, Thanksgiving
TBA
December 1 Alexi Lahav
TBA
8 Jim Liebman TBA
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Draft, November 9, 2011
The Brussels Effect
Anu Bradford†
INTRODUCTION
It is common to hear Europe described today as the power of the past. Europe is
perceived to be weak militarily. Its relative economic power is declining as Asia’s is rising. Its
common currency may be on the verge of disintegrating. On the world stage, the European
Union is thought to be waning into irrelevance due to its inability to speak with one voice.
Given its seemingly declining power status and inability to get its way alone, the EU must retreat
to weak multilateralism and international institutions.
Contrary to this prevalent perception, this paper highlights a deeply underestimated
aspect of European power that the discussion on globalization and power politics overlooks:
Europe’s unilateral power to regulate. The European Union sets the rules for global markets
across a range of areas, such as food, chemicals, competition, and the protection of privacy. EU
regulations have a tangible impact on the everyday lives of citizens around the world. Few
Americans are aware that EU regulations dictate the make-up they apply in the morning (EU
Cosmetics Directive), the cereal they eat for breakfast (EU rules on Genetically Modified
Organisms, “GMOs”), the software they use on their computer (EU Antitrust Laws), and the
privacy settings they adjust on their Facebook page (EU Privacy Directive). And that’s just
before 8:30 in the morning. The EU also sets the rules governing the interoffice phone directory
they use to call a co-worker (EU Privacy Laws, again). EU regulations dictate what kind of air
conditioners Americans use to cool their homes (EU electronic waste management and recycling
rules) and are even the reason why their children no longer find soft-plastic toys in their
McDonalds happy meals (EU Chemicals Directive).1 This phenomenon—the “Brussels
Effect”—is the focus of this paper.
† Assistant Professor, University of Chicago Law School. Helpful comments were provided by George Bermann,
Rachel Brewster, Grainne DeBurca, Jacob Gersen, Tom Ginsburg, Victor Goldberg, Suzanne Kingston, Katerina
Linos, Nathaniel Persily, Eric Posner, Tonya Putnam, Charles Sabel, Joanne Scott and Anne-Marie Slaughter, as
well as the participants of the “Internal Law and Global Public Goods” Workshop held at Duke Law School and
“The Legal Order, the State and the Economic Development” Workshop held in Florence. I am grateful to Taimoor
Aziz, Elliott DeRemer, Peter Dietrich, Christodoulus Kaoutzanis, and Pauline Phoa for excellent research assistance. 1See Regulatory Imperialism, WALL ST. J., Oct. 26, 2007 at 1; Brandon Mitchener, Standard Bearers: Increasingly,
Rules of Global Economy Are Set in Brussels—To Farmers and Manufacturers, Satisfying EU Regulators Becomes
a Crucial Concern—From Corn to SUV ‘Bull Bars,’ WALL ST. J., April 22, 2002, at A1; David Sheer, Europe’s
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This paper explains how and why the rules and regulations originating from Brussels
have penetrated many aspects of economic life within and outside of Europe through “unilateral
regulatory globalization.” Here, unilateral regulatory globalization refers to a globalization of
regulatory standards where a single state is able to externalize its laws and regulations outside its
borders through market mechanisms. This process can be distinguished from political
globalization of regulatory standards where regulatory convergence results from negotiated
standards, including international treaties or agreements between states or regulatory authorities.
It is also different from unilateral coercion, where one jurisdiction imposes its rules on others
through threats or sanctions. Unilateral regulatory globalization is a development where a law of
one jurisdiction migrates into another in the absence of the former actively imposing it or the
latter willingly adopting it.
Critics of globalization have claimed that trade liberalization undermines domestic
regulation. Extensive literature has emerged regarding the “race to the bottom” (RTB)
phenomenon—the idea that countries lower their regulatory standards in order to improve their
relative competitive position in the global economy. Recently, many of the assumptions driving
this influential literature have been discredited.2 Fears of businesses relocating to pollution
havens or of capital flights following higher levels of corporate taxation have not materialized in
large numbers. Indeed, scholars have shown that international trade has frequently triggered a
“race to the top” (RTT), whereby domestic regulations have become more stringent as the global
economy has become more integrated.3 Still, the RTB paradigm remains influential, shaping the
debates among scholars and policy makers alike.
The discussion on global regulatory races mirrors the debates on regulatory outcomes in
federal systems. The “Delaware Effect” has been used to explain devolution in standards within
the US: since corporations can be incorporated in any state irrespective of where they do
business, all states have an incentive to relax their chartering requirements in order to attract tax
revenues that corporations bring to the state. Delaware has been the winner of this race by virtue
of having corporate laws that are most favorable to management. An opposite phenomenon is
captured by the “California Effect”: due to its large market and preference for strict consumer
and environmental regulations, California is, at times, able to set the regulatory standards in all
the other states.4 Firms willing to export to California must meet its standards and the prospect
of scale economies from uniform production standards gives these firms an incentive to apply
this same (strict) standard to their entire production.5
New High-Tech Role: Playing Privacy Cop to the World, WALL ST. J., October 10, 2003: Case MN.5984
Intel/McAfee (Commission decision of January 26, 2011) 2 See David Vogel & Robert A. Kagan, Introduction, in DYNAMICS OF REGULATORY CHANGE: HOW GLOBALIZATION
AFFECTS NATIONAL REGULATORY POLICIES 4–5 (David Vogel & Robert A. Kagan eds. 2004) 3 See David Vogel, Trading Up and Governing Across: Transnational Governance and Environmental Protection, 4
J. EUROP. PUB. POL. 556, 563 (1997); Vogel & Kagan, supra note 2, at 2–8. ; Debora Spar & David B. Yoffie, A
Race to the Bottom or Governance from the Top?, in COPING WITH GLOBALIZATION 31, 31–51 (A Prakash & J.A.
Hart eds., 2000); 4 See DAVID VOGEL, TRADING UP: CONSUMER AND ENVIRONMENTAL REGULATION IN A GLOBAL ECONOMY (1995).
5 See Vogel & Kagan, supra note 2, at 9. For an example of a California regulation that prompted firms to adopt the
California standard and alter their production nationwide, see Safe Drinking Water and Toxic Enforcement Act of
1986, Cal. Health & safety Code §§ 25249.5-25249.13 (on labeling requirements in the presence of carcinogenic or
reproductive toxins in consumer products or food).
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This paper explores the dynamics of the California Effect in a global context.6 It focuses
on the conditions under which a single country can externalize its regulations on other countries.
It argues that the following conditions determine any given jurisdiction’s ability to dictate rules
for global commerce: the jurisdiction must have a large domestic market, a significant regulatory
capacity, and the propensity to enforce strict rules over inelastic targets (e.g., consumer markets)
as opposed to elastic targets (e.g., capital). In addition, unilateral regulatory globalization
presumes that the benefits of adopting a uniform global standard exceed the benefits of adhering
to multiple, including laxer, regulatory standards. This is the case in particular when the firms’
conduct or production is non-divisible, meaning that it is not legally or technically feasible, or
economically viable, for the firm to maintain different standards in different markets.
Unpacking the determinants of unilateral regulatory globalization explains why the EU
has become the predominant regulator of global commerce and why the EU can successfully
export certain norms and not others. The EU has the world’s largest internal market, supported
by strong regulatory institutions. Trading with the EU requires foreign companies to adjust their
conduct or production to the EU standards—which often represent the most stringent
standards—or else forgo the EU market entirely. The latter is rarely an option. In addition, the
EU rules cannot be undermined by moving the regulatory targets to another jurisdiction given
that the EU regulates primarily (inelastic) consumer markets as opposed to (more elastic) capital
markets. While the EU is only regulating its internal market, multinational corporations often
have an incentive to standardize their production globally and adhere to a single rule. This
converts the EU rule into a global rule (de facto Brussels Effect). Finally, after these export-
oriented firms have adjusted their business practices to meet the EU’s strict standards, they often
have the incentive to lobby their domestic governments to adopt these same standards in an
effort to level the playing field against their domestic, non-export-oriented competitors (de jure
Brussels Effect).
Further, this paper seeks to explain what motivates the EU to exercise this authority and
what implications this regulatory leverage has on other countries, including the US. It concludes
that the EU’s external regulatory agenda is primarily, even if not exclusively, driven by a set of
entrenched domestic policy preferences and the EU’s efforts to create an internal market that
reflects those preferences. The EU’s external regulatory agenda has thus emerged largely as an
inadvertent by-product of that internal goal rather than as a result of some conscious choice to
engage in “regulatory imperialism”.
After acknowledging the many benefits of global regulatory authority, this paper moves
on to discuss the limits of the Brussels Effect and the extent to which other countries or
international institutions are able to counterbalance the EU’s regulatory hegemony. Markets
have a limited ability to act as a constraint on the “Europeanization” of global economic activity
given that the EU primarily regulates policy areas of low-elasticity, including consumer markets.
Other states are also often powerless. Countries whose regulatory preferences are overridden by
the EU’s standards gain nothing by entering into a regulatory race with the EU—outpacing the
EU will only leave them with even higher, and hence less desirable, regulatory standards.
Further, international institutions have only an imperfect ability to dampen the EU’s regulatory
6 See VOGEL, supra note 4, at 562.
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ambitions since regulation of areas such as privacy and antitrust do not fall within the purview of
the WTO or other international institutions. This paper therefore argues that the greatest check
on the EU’s regulatory powers comes from within the EU itself. As the EU’s powers grow, so
do divisions within the EU. Thus, in the end, the boundaries of the EU’s regulatory reach are
defined by the EU’s own evolving conception of the limits of its regulatory authority.
This paper contributes to the scholarship on convergence and regulatory divergence.7 It
also engages directly with the literature on the direction of possible regulatory races i.e., whether
the Delaware Effect or the California Effect is more pervasive in explaining regulatory outcomes
globally.8 Yet it departs from these debates in the following ways. First, it seeks to outline the
precise conditions that allow an upward regulatory convergence to take place. While the
California Effect is recognized as a phenomenon, the scholarship has failed to explain its actual
scope beyond anecdotes and individual examples. The existing literature has also focused on the
country’s market size as the best proxy for its external regulatory influence. This paper shows
that the market power alone does not explain the Brussels Effect and offers a more nuanced
theory for its occurrence.
Second, the discussion shows that the Brussels Effect is more pervasive and widespread
than thus far recognized. The existing literature on upward regulatory races focuses almost
exclusively on environmental regulation. Even there, scholars claim that regulatory
globalization through the California Effect is constrained to “only a highly limited subset of
environmental laws” and largely excluded in case of production (as opposed to product)
standards,9 or consumer protection.
10 This view fails to capture the full impact of the
phenomenon.
Third, the existing literature focuses on RTT that takes place when a foreign (lax)
regulator adopts the (strict) rule of the lead regulator.11
This attention to “de jure regulatory
convergence” fails to account for an important empirical phenomenon that takes in the absence
of any change in legal rules. In reality, this type of formal “trading up” is often incomplete.
Instead, we typically see only a “de facto regulatory convergence” whereby much of global
7 See Daniel W. Drezner, Globalization, Harmonization, and Competition: the Different Pathways to Policy
Convergence, 12 J. EUROP. PUB. POL. 841, 841–859 (2005); Beth Simmons, The International Politics of
Harmonization: The Case of Capital Market Regulation, in DYNAMICS OF REGULATORY CHANGE: HOW
GLOBALIZATION AFFECTS NATIONAL REGULATORY POLICIES 42, 50–52 (David Vogel & Robert A. Kagan eds.
2004). 8 See Vogel & Kagan, supra note 2, at 9.
9 See Fritz Scharpf, Negative and Positive Integration in the Political Economy of European Welfare States,
European University Institute, Jean Monnet Chair Papers 28 (1995); Peter P. Swire, The Race to Laxity and the Race
to Undesirability: Explaining Failures in Competition Among Jurisdictions in Environmental Law, 14 YALE L. &
POL’Y REV. 67, 67–110 (1996). 10
See Jonathan R. Macey, Regulatory Globalization as a Response to Regulatory Competition, 52 EMORY L.J. 1353,
1359 (2003) (arguing that regulatory globalization does not take place in the area of consumer protection, where
regulators are assumed to have complete autonomy to regulate their domestic markets). 11
See Vogel & Kagan, supra note 2, at 14 (focusing on de jure trading up as the foreign country switches its
standards as a result of RTT); Simmons, supra note 7 (focusing on conditions under which other regulators have the
incentive to adjust); JOHN BRAITHWAITE & PETER DRAHOS, GLOBAL BUSINESS REGULATION 518–19 (2000)
(discussing both RTB and RTT and arguing that RTT is a result of countries adopting best practices that they
consider to be in their interest).
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business is conducted under unilateral EU rules even when other states continue to adhere to
their own rules. This is true, for instance, with respect to US antitrust laws, privacy laws, and
rules on food safety. Unilateral regulatory globalization has the advantage of not needing to
elicit a regulatory response from another nation—often there is no RTT or de jure Brussels
Effect. The EU law governs whether other countries follow suit or not. Seen in this light, the
Brussels Effect is more about one jurisdiction’s ability to override others through “trump
standards” than it is about triggering an upward race.
It is true that at times this de facto Brussels Effect is reinforced with a de jure Brussels
Effect. This is the case when other countries’ legislators affirmatively adopt the EU’s strict
standard. But even here, the path to regulatory convergence follows a different sequence than
what we are traditionally accustomed to. Corporations’ de facto adjustment to the EU rules
paves the way for legislators’ de jure implementation of these rules rather than the other way
around. Thus, the implementation problem of the de jure Brussels Effect is solved from the
outset.
Fourth, the theory of unilateral regulatory globalization departs from existing scholarship
on the relationship between regulatory convergence and regulatory power. Daniel Drezner has
argued that great power consensus leads to regulatory convergence whereas great power
disagreement leads to regulatory divergence and the emergence of rival standards.12
Which rival
standard trumps the other depends on the regulatory powers’ relative ability to seek allies and
reach a tipping point after which the rival states need to switch standards. In contrast to Drezner,
this paper shows that de facto convergence can take place in the midst of a great power
disagreement. When the conditions for the Brussels Effect exist, rival standards between two
equal powers fail to materialize. Instead, the outcome of the regulatory race is predetermined: the
more stringent regulator prevails.
Finally, prevailing theories on regulatory globalization explain the emergence of
regulatory convergence as a result of cooperation or coercion. The Brussels Effect is different in
that it falls between the two. Beth Simmons, for instance, shows how in the case of capital
adequacy requirements and accounting standards for public offerings, countries with lenient
regulatory standards have an incentive to adopt other countries’ stricter standards in order to
attract foreign capital.13
This amounts to a market-driven RTT that is normatively desirable—the
followers have a clear economic incentive to adopt the desirable rules that leave everyone better
off. In contrast, unilateral regulatory globalization is rarely a process of voluntary
harmonization: foreign corporations would often prefer another rule but find it rational to adjust
nonetheless given the opportunity costs of not doing so. Yet the EU is not coercing others to
adopt its rules either. Market forces are sufficient to create “involuntary incentives” to adjust to
the rules of the strict regulator. In other words, unilateral regulatory globalization entails the
dominant jurisdiction imposing an incentive to adjust, followed by “reluctant emulation” by
market participants. Seen this way, unilateral regulatory globalization is produced through “go-
it-alone power” by a dominant regulator.14
12
See Drezner, supra note 7, at 841. 13
See Simmons supra note 7, at 49. 14
See Lloyd Gruber, RULING THE WORLD: POWER POLITICS AND THE RISE OF SUPRANATIONAL INSTITUTIONS
(2000). Gruber contests the positive-sum models of international cooperation and explains why states join
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In addition to advancing the literature on regulatory globalization, this paper makes a
contribution to the literature on state power in international relations. While traditional tools of
power have waned in importance—it is increasingly difficult to exert influence through raw
military power or rely on economic sanctions or conditional incentives—regulatory power that
the EU possesses is more durable, more deployable and less easily undermined by others.
This paper proceeds as follows. Section I outlines the conditions under which the
Brussels Effect takes place. Section II illustrates the Brussels Effect through examples. Section
III discusses the reasons that motivate the EU to externalize its regulations. Section IV explains
when and why the EU pursues political (cooperative) regulatory globalization instead of market-
driven (unilateral) regulatory globalization. Section V discusses the limits of the Brussels
Effect. The Conclusion focuses on the implications of EU’s global regulatory role within and
beyond the EU. The purpose of this discussion is descriptive. This paper will not discuss whether
high regulatory standards are efficient or desirable. Instead, it provides an account for why and
how trade liberalization can lead to stringent standards, why this follows a process of unilateral
regulatory globalization and why today these global standards are set predominantly by the EU.
I. CONDITIONS FOR UNILATERAL REGULATORY GLOBALIZATION
This section lays the theoretical foundation for the Brussels Effect. It identifies the
conditions for and the mechanism through which the externalization of one state’s standards
unfolds and explains why the EU is currently the predominant regulatory regime that can wield
unilateral influence across a number of areas of law.
Existing literature on regulatory globalization focuses on the country’s market size as a
proxy for its ability to exercise regulatory authority over foreign entities.15
Yet a more careful
examination of unilateral regulatory authority suggests that market power alone does not
determine whether any given country’s standards can be globalized. The state must also have the
regulatory capacity and the regulatory propensity to exercise global regulatory authority. By
“regulatory capacity,” I refer to institutional structures that are capable of producing and
enforcing regulations effectively. By “regulatory propensity,” I refer to a domestic preference for
strict regulatory standards and the predisposition to regulate inelastic targets. Only strict
standards regulating targets that cannot move ensure that the country’s regulations can trump
alternative regulatory standards and make other jurisdictions’ regulatory authority obsolete
without being punished by markets or constrained by other jurisdictions’ regulatory responses.
Finally, The EU standard becomes a global standard only when the benefits of adhering to a
single global standard are greater than the benefits of taking advantage of laxer standards in
lenient jurisdictions—in other words, when targets’ conduct or production is non-divisible.
institutions that are not Pareto-improving for them. When states that win from some cooperative arrangement are in
a position to proceed even without the support of the losing states, losing states’ interest calculation changes and
they join the new institution even though they would have preferred that such an institution was never set up in the
first place. 15
See Drezner, supra note 7, at 846; See also David A. Wirth, The EU’s New Impact on U.S. Environmental
Regulation, 31:2 Fletcher Forum World Aff. 96 (2007).
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A. Market Power
In the global economy, power is correlated with the relative size of any given country’s
internal market.16
To secure access to most important markets, producers gravitate towards the
standards prevailing in those markets.17
The larger the market of the (strict) importing country
relative to the (lenient) market of the exporter country, the more likely the Brussels Effect will
occur.18
More accurately, the greater the ratio of exports to the (strict) jurisdiction relative to
sales in the (lenient) home or third country markets, the more likely the Brussels Effect will
occur. The better the exporter’s ability to divert trade to third markets or increase demand on its
home market, the less dependent it is on access to the market of the strict jurisdiction.
Focusing on large domestic markets alone, several states could qualify as potential global
standard setters. The EU is the largest economy in the world. It consists of a single market with
500 million consumers. The EU has a quarter of the world’s GNP and is the largest importer of
goods and services. The EU’s internal market is also constantly growing as new countries are
joining the EU. Of course, the United States, China, and Japan also possess domestic markets
large enough to use access to their markets as leverage. The United States has an economy of
over $14 trillion, almost the same size as the EU, while China has an economy of $10 trillion and
Japan has one of $4 trillion.19
When assessing the value of market access, foreign corporations also consider the
adjustment costs that are necessary to enter the market. A foreign producer will have an
incentive to comply with the importing jurisdiction’s strict standard when the benefits of market
access outweigh the adjustments costs. The larger the importing (strict) market and the lower the
adjustment costs relative to the benefits of market access, the more likely that adjustment will
take place.20
In the case of consumer goods, the benefits of market access are determined by the
number and affluence of potential consumers of that product as well as by the opportunity costs
of forgoing those consumers. These opportunity costs are particularly high when demand in the
corporation’s home market or in alternative third markets is limited. The adjustment costs can
consist of initial set-up costs and recurring compliance costs. They vary with the significance of
cross-border differentials (determining the degree of adjustment) and various other compliance
costs associated with market access (including licenses or approval processes).
With the world’s largest consumer market consisting of a high proportion of affluent
consumers, most producers are dependent on their ability to supply the EU market. They may be
able to divert part of their exports elsewhere but few are in a position to abandon the EU market
altogether and recoup the forgone revenue in other markets. The distinctly high value of market
16
See Drezner, supra note 7, at 843. 17
See id. 18
See Sebastian Princen, The California Effect in the EC’s External Relations: A Comparison of the Leghold Trap
and the Beef Hormone Issues between the EC and the US and Canada (1999) (unpublished paper read at European
Community Studies Association Sixth Biennial International Conference) cited in Vogel & Kagan, supra note 2, at
13. 19
See CIA WORLD FACTBOOK, https://www.cia.gov/library/publications/the-world-factbook/ (last visited Aug. 19,
2011). 20
See Alasdair R. Young, Political Transfer and “Trading Up”? Transatlantic Trade in Genetically Modified Food
and U.S. Politics, 55 WORLD POL. 457, 459 (2003) citing Vogel & Kagan, supra note 2, at 10.
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access to the EU explains why many producers are prepared to incur even significant adjustment
costs to retain their ability to trade with the EU.
B. Regulatory Capacity
Large market size alone does not explain a state’s ability to project its regulatory
preferences on others. Being a regulatory power is a conscious choice pursued by a state rather
than something that is inherent in its market size. Not all states with large markets become
sources of global standards. The state must also have the regulatory capacity to translate its
market power into tangible regulatory influence.21
Without regulatory expertise and resources to
enforce its rules, a country cannot effectively exert authority over market participants—within or
outside of its jurisdiction. An important element of regulatory capacity is the authority to impose
sanctions in case of non-compliance. Only jurisdictions with the capacity to impose significant
costs on others by excluding non-complying firms from their markets can force regulatory
adjustment.22
The possession or absence of regulatory capacity set important limits to country’s ability
to exert global regulatory authority. For instance, many Asian economies are growing at a
staggering rate but it will take time before their GDP growth translates into regulatory experience
and institutional capacity to enforce their norms. Thus, acknowledging that sophisticated
regulatory institutions are required to activate the power of sizable domestic markets, few
jurisdictions outside the US or the EU have the capacity to be regulators with global reach.23
The capacity of the US administrative agencies to promulgate and enforce rules in the
United States is well understood. The rise of the regulatory state in the EU is more recent, yet
the institutional developments that accompanied the creation of the single market have bestowed
the EU with substantial regulatory capacity.24
Vesting the EU institutions with the expertise,
powers and resources to guard the common market and to guarantee the rights and
responsibilities embedded in European Treaties has been integral to the entire European
project.25
The European Commission enjoys substantial independent decision-making authority.
It proposes legislation and ensures that the regulations and directives adopted by the Council and
the Parliament are implemented in the Member States. The EU’s regulatory capacity varies
across different policy areas, being most extensive in areas like trade and competition policy,
which are necessary to establish and strengthen the single market, and most limited in sensitive
areas such as common foreign and security policy, where the individual Member States have
retained substantial authority.
21
See David Bach & Abraham L. Newman, The European regulatory state and global public policy: micro-
institutions, macro-influence, 14 J. EUROP. PUB. POL. 827, 831 (2007). 22
See Id., at 832. 23
See Sophie Meunier & Kalypso Nicolaidis, The European Union as a Conflicted Trade Power, 13 J. EUROP. PUB.
POL. 906, 908 (2006). 24
See Giandomnico Majone, The Rise of the Regulatory State in Europe, 17 W. Europ. Pol. 76, 77–101 (1994). 25
The Council of the European Union (representing the Member States), together with the European Parliament
(representing the EU citizens), exercises legislative authority in the EU. The Council takes decisions by a simple or
qualified majority vote or, depending on the subject matter, unanimously. The European Commission (representing
the common EU interest) is the EU’s executive arm.
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C. Preference for Strict Rules
Regulatory capacity must further be supplemented with the political will to deploy it.
Thus, the jurisdiction must also have the propensity to promulgate strict regulatory standards.
The domestic preference for strict regulation is more likely to be found in countries with high
levels of income. Wealthier countries can better afford pursuing consumer protection at the
expense of the profitability of their firms. This, together with the lack of regulatory capacity,
explains why emerging markets are unlikely to exercise rule-making power that would match
their growing market size. But even wealthy countries differ in their predisposition to regulatory
intervention. To be a global regulator requires that the state subscribe to strict domestic standards
that can trump more lenient standards by the simple virtue of being the most stringent. Until the
1980s, the US set the global norms, leading European firms to adjust to higher standards
originating from the US.26
Since then, the roles have been reversed as the EU has increasingly
adopted tighter standards of consumer and environmental protection while the US has failed to
follow the EU’s lead.27
The only way for the US to override the European standards today
would be to adopt even higher standards itself—something that it does not consider to be
welfare-enhancing and thus in its interest.
The EU’s domestic preference for high regulation reflects its aversion to risk and
commitment to a social market economy.28
European consumers rank environment and food
safety higher than crime and terrorism when asked to evaluate various risks, leading to distinctly
high levels of consumer and environmental protection.29
The EU follows the “precautionary
principle,” which dictates that precautionary regulatory action is proper even in the absence of an
absolute, quantifiable certainty of the risk, as long as there are reasonable grounds for concern
that the potentially dangerous effects may be inconsistent with the chosen level of protection.30
In contrast, the risk must first be quantified and found to be unreasonable before regulatory
intervention can be justified in the US. The US regulatory agencies are also guided by the cost-
benefit analysis, which forces them to substantiate that the benefits of intervention outweigh its
costs. To generalize, the US is, therefore, more sensitive to the costs of regulatory action and the
“false-positive” regulations whereas the EU emphasizes the costs of inaction and the risks of
26
See e.g., Ragnar E. Lofsted & David Vogel, The Changing Character of Consumer and Environmental
Regulation: A Comparison of Europe and the United States, 21 Risk Analysis 399 (2001). 27
See Zaki Laidi, The Unintended Consequences of European Power, LES CAHIERS EUROPEENS DE SCIENCES PO 8
(Aug. 08, 2011), available at http://www.cee.sciences-po.fr/erpa/docs/wp_2007_5.pdf ; R. Daniel Keleman & David
Vogel, Trading Places: The US and the EU in International Environmental Politics (September 2007), available at
http://www.princeton.edu/~smeunier/kelemen%20vogel%20trading%20places%20sept%2007.pdf 28
The EU’s commitment to the social market economy is explicitly mentioned as a common objective for Europe in
Article 3 of the new Lisbon Treaty. 29
See Laidi supra note 27, at 8. See also Special Environmental Eurobarometer, “Attitudes of Europeans Towards
Environment,” available at
http://ec.europa.eu/public_opinion/archives/ebs/ebs_217_en.pdf 30
See The European Commission Communication on the Precautionary Principle (February 2, 2000); Sarah
Harrell, Beyond “REACH”?: An Analysis of the European Union’s Chemical Regulation Program Under World
Trade Organization Agreement, 24 Wis. Int’l L.J. 471, 480 (2010). However, purely hypothetical risk is not
sufficient grounds for regulatory intervention. See Case T-13/99 Pfizer, at para. 142.
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“false-negatives.” These differences in the two regulators’ approaches often lead to more
extensive regulation originating from the EU.31
The extent of regulation at the EU level also reflects the efforts by export-oriented EU
firms to seek consistent and predictable regulatory frameworks. Uniform regulations have
abolished obstacles for doing business within the community. And once all European firms have
incurred the adjustment costs of conforming to common European standards, they have preferred
those standards to be institutionalized globally. Hence, to level the playing field and ensure the
competitiveness of European firms, EU corporations have sought to export these standards to
third countries.
D. Predisposition to Regulate Inelastic Targets
Strict domestic regulations can operate as global trump standards only if such strict
regulations cannot be circumvented by moving the regulatory targets to another jurisdiction. In
other words, a state’s ability to override another state’s preference for lenient standards is
compromised if the target can escape the strict regulation by simply relocating. This is the
dynamic that triggers races to the bottom as producers seek less constraining regulatory
environments. The EU is primarily regulating consumer markets. Unlike other regulatory targets
such as capital, which is more mobile, consumers rarely move to another jurisdiction. Thus, as
long as a firm willing to trade within the EU wants access to its 500 million consumers, it needs
to comply with the EU’s consumer protection regulations. These consumers cannot be moved to
a jurisdiction where lesser protections govern what products can be sold to them.
The inelasticity of consumer markets can be contrasted with a global corporation’s
strategic decision on where to incorporate or enlist or to a shipping company’s decision
regarding the flag under which its ship is sailing. While not perfectly elastic, capital is
significantly more mobile than consumer markets are.32
If the EU, for instance, tried to
harmonize corporate tax levels at excessively high levels, a number of corporations could flee its
jurisdiction and incorporate elsewhere. Similarly, if the EU was to impose a tax on financial
transactions, trading activity could be diverted to financial centers outside the EU.33
Thus, the
EU’s choice of focusing on consumer markets in its regulatory endeavors thus far has further
reinforced its role as a global standard setter whose regulations cannot be undermined by market
forces and the elasticity of its targets.
31
However, there are examples of regulatory areas where the US prefers a stricter rule. For instance, the US is more
concerned than the EU is about the adverse effects of smoking, see Paulette Kurzer, European Citizens Against
Globalization: Public Health and Risk Perceptions (April 2004). See also discussion on US financial regulation,
infra, at p. 40-41. 32
International capital mobility is contingent on a numerous factors and assumes limited exchange controls and the
ability of foreign corporations and individuals to engage in FDI and invest in foreign stock markets. See also
discussion, infra at p 40-41 (discussing whether stock exchange listings, indeed, are elastic). 33
In the wake of the financial crises in the Eurozone, the Commission has proposed to impose a financial transaction
tax. However, The UK, among others, is vehemently opposed. See Joshua Chaffin, Business attacks transaction tax
plan, FT (September 28, 2011). See also discussion on the limits of the Brussels Effect, infra Section V.
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E. Non-divisibility of Standards
The above conditions only ensure that the strict jurisdiction is able to regulate
extraterritorially. This does not, by itself, mean that the strict standard is being globalized. The
Brussels Effect is only triggered when the exporter, after having converted its products or
business practices to comply with the strict standards, decides to apply this new standard to its
products or conduct worldwide. In other words, trump standards emerge only when corporations
voluntarily opt for a single global standard, determined by the most stringent regulator, making
other regulations obsolete in the process.
The exporter has an incentive to adopt a global standard whenever its production or
conduct is non-divisible across different markets or when the benefits of a uniform standard due
to scale economies exceed the costs of forgoing lower production costs in less regulated markets.
One regulatory standard allows a corporation to maintain a single production process, which is
less costly than tailoring its production to meet divergent regulatory standards.34
Thus, unilateral
regulatory globalization follows from the non-divisibility of a corporation’s production or
conduct.
Non-divisibility of a corporation’s production or conduct stems from a variety of reasons.
Global mergers cannot be consummated on a jurisdiction-by-jurisdiction basis—the most
stringent antitrust jurisdiction gets to determine the fate of the transaction worldwide (legal non-
divisibility). The same principle of non-divisibility often applies for the regulation of privacy.
The EU is forcing companies like Google to amend their data storage and other business
practices to conform to European standards of privacy. Unable to isolate its data collection for
the EU, Google is forced to adjust its global operations to the most demanding EU privacy
standard (technical non-divisibility). The EU also often sets the global health, environmental and
other product standards. An illustrative example is European chemical regulation, which applies
to all companies willing to enter the EU market. This allows the EU to effectively dictate the
global product standards for numerous US manufacturers who would find it too costly to develop
different products for different consumer markets (economic non-divisibility).
These examples can be contrasted with attempts to regulate, for example, labor standards.
Labor markets are divisible and adhering to one global minimum wage, for instance, entails few
scale economies. A corporation can maintain without difficulty different standards ranging from
working hours, vacation policies, and overtime to retirement plans and collective labor strategies
and in different jurisdictions. When employing labor in Europe, foreign firms have to follow the
EU’s labor rules yet are able to take advantage of divergent (and presumably lower) standards in
their home markets.35
***
34
See Drezner, supra note 7, at 844–45; David Lazer, Regulatory Interdependence and International Governance, 8
J. EUROP. PUB. POL. 474, 474–92 (2011). 35
Note that this paper does not argue that labor standards cannot be exported to other jurisdictions thorough other
means. The argument is only that to the extent divisible, labor standards are not amenable to the Brussels Effect.
See for instance, Brian Greenhill, Layna Mosley, & Aseem Prakash, “Trade-based Diffusion of Labor Rights: A
Panel Study 1986-2002,” 103 APSR (2009).
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Thus, a single jurisdiction is able to supply global standards whenever that jurisdiction
has a large domestic market, sufficient regulatory infrastructure, and the preference for
regulating inelastic targets with strict and non-divisible standards. Otherwise its regulatory
authority can become irrelevant since other jurisdictions may trump its standards or its chosen
regulatory targets may move to less burdensome jurisdictions or segregate their standards across
different markets.
II. EXAMPLES OF UNILATERAL REGULATORY GLOBALIZATION
The above discussion has focused on the conditions under which a state can harness the
power of markets to unilaterally globalize its standards. The cumulative force of the conditions
underlying the Brussels Effect suggests that the EU is the predominant entity that can exercise
global regulatory authority across a wide range of regulatory areas. These same conditions also
delineate the kind of standards that the EU can effectively externalize. This section illustrates a
few areas of regulatory policy that demonstrate the EU’s ability to unilaterally set global rules,
focusing on antitrust, privacy, human health, and the environment. It also discusses food safety
as an example of an area where the EU’s attempt to regulate global production has been partially
successful. Yet the EU sets global standards in many other fields, including
telecommunications36
and aspects of financial regulation.37
A. Antitrust Laws
The strictest antitrust laws prevail in situations where conflict exists among different
regulators. If a lenient antitrust jurisdiction A and a stringent antitrust jurisdiction B investigate
the same transaction, B’s standard will prevail. A company seeking to merge that would be
rejected by State B has two options: abandon the merger or abandon State B. If State B’s market
is relatively insignificant, the company might choose the latter. However, if State B’s market is
large, abandoning it is not often a realistic option.38
At the international level, the EU antitrust
law is, indeed, often the most stringent one. The EU also consists of a consumer market that is
too large and important to abandon. For this reason, the EU antitrust laws have often become the
de facto global antitrust standards around the world, to which the more permissive US antitrust
laws must yield.
The reasons for the US-EU difference in antitrust enforcement are manifold. At the most
basic level, the EU antitrust authorities remain suspicious of the market’s ability to deliver
efficient outcomes and are therefore more inclined to intervene through a regulatory process.
While the EU is more fearful of the harmful effects of non-intervention (so called “false-
negatives” i.e., anti-competitive practices that the EU fails to regulate), the US authorities are
often more mindful of the detrimental effects of inefficient intervention (so called “false-
36
See Henrik Glimstedt, Competitive Dynamics of Technological Standardization: The Case of Third Generation
Cellular Communications, 8 INDUS. & INNOV. 49, 49–78. 37
See Chris Brummer, Stock Exchanges and the New Markets for Securities Laws, 75 U. CHI. L. REV. 1435, 1469–
71 (2008). 38
See Anu Bradford, Antitrust Law in Global Markets, in Einer Elhauge (ed.): RESEARCH HANDBOOK ON THE
ECONOMICS OF ANTITRUST LAW (Einer Elhauge ed., forthcoming 2011).
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positives” i.e., pro-competitive practices that the US erroneously restricts).39
Yet given the logic
of unilateral regulatory globalization, it is the EU approach that determines the outcome.
One of the most famous examples of the EU’s global regulatory clout was its decision to
prohibit the $42 billion proposed acquisition of Honeywell International by General Electric.40
When the EU blocked this transaction involving two US companies, it was irrelevant that the US
antitrust authorities had previously cleared the transaction: the acquisition was banned
worldwide as it was legally impossible to let the merger proceed in one market yet prohibit it in
another. In this sense, merger decisions are legally non-divisible.41
The GE/Honeywell case is
emblematic of a difference in the antitrust regulatory approaches of the EU and the US. The US
authorities considered the merger to be efficient and hence welfare-enhancing. In contrast, the
EU was concerned that any efficiencies that resulted from the transaction, including a short term
decrease in price, would later drive out competitors and result in a long term increase in price.42
While GE/Honeywell is the most famous international antitrust enforcement conflict, it
does not stand alone.43
The EU similarly threatened to block a merger between two US
companies, Boeing and McDonnell Douglas, even though the deal was already cleared by the US
authorities—without conditions.44
In the end, the EU let the merger proceed subject to extensive
commitments.45
These included abandoning Boeing’s exclusive dealing contracts with various
US carriers.46
Similarly, the EU often gets to dictate the code of conduct for dominant
companies worldwide. The EU has imposed record-high fines and behavioral remedies against
dominant US companies, including Microsoft and Intel.47
39
See, for instance, Deborah Majoras: GE/Honeywell: The U.S. Decision, November 29, 2001, p. 16 (comparing US
and EU enforcement approaches and noting that “in the United states, we have much greater faith in markets than
we do in regulators […]the European Union comes from a more statist tradition that places greater confidence in the
utility of governmental intervention in markets”) 40
Case COMP/M.2220 General Electric/Honeywell (July 3, 2001); in contrast, see Press Release U.S. Dept. of
justice, Justice Department Requires Divestitures in Merger between General Electric and Honeywell (may 2, 2001),
available at http://www.justice.gov/atr/public/press_releases/2001/8140.pdf 41
Note that all antitrust decisions are not characterized by non-divisibility. For instance, a company may be able to
retain different distribution systems in different markets. Thus, if the EU bans certain vertical agreement between a
manufacturer and its dealer, the manufacturer can often hold onto a similar arrangement in another jurisdiction. See
also discussion infra p. 42 (noting Microsoft’s decision to offer an unbundled product only in the EU as an example
of divisibility). 42
See Bradford, supra note 38, at 5. See also Eleanor Fox, “GE/Honeywell: The U.S. Merger that Europe Stopped -
A Story of the Politics of Convergence,” in ANTITRUST STORIES (Daniel A. Crane and Eleanor M. Fox, ed.,
Foundation Press, 2008). 43
See also, for instance, the EU’s decision to block the acquisition of DeHavilland by the ATR, which had been
approved by the Canadian authorities, Case No. IV/M.053 Aerospatiale-Alenia/Havilland (October 2, 1991) 44
Boeing Co., et al. Joint Statement Closing Investigation of the Proposed Merger, 5 Trade Reg. Rep. (CCH)¶
24,295 (July 9, 1997). 45
Case No. IV/M.877 Boeing/McDonnell Douglas (July 30, 1997) 46
See discussion of commitments in William E. Kovacic, Transatlantic turbulence: The Boeing-McDonnell Douglas
Merger and International Competition Policy, Antitrust Law Journal, vol 68 (2000-2001) 839. 47
COMP/37.990 Intel (May 13,2009); COMP/C-3/37.792 Microsoft (2004); See Miguel Helft, Google Joins Europe
Case Against Microsoft, N.Y. TIMES, Feb. 25, 2009 at B6; Europe v. U.S. Business, WALL ST. J., JAN. 17, 2008 at
A16.
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The global nature of antitrust remedies is not unusual. The EU has frequently extracted
commitments that require parties to modify their behavior globally or restructure assets in
foreign countries.48
However, the US has similarly restructured deals where parties’ productive
assets are located offshore. Both the US and EU agencies are vested with extraterritorial
regulatory capacity. Both recognize their authority to apply laws to foreign companies as long as
anti-competitive “effects” are felt on their markets. It is thus not the regulatory capacity as such
but the EU’s sustained preference to impose more frequent and more invasive remedies that has
made it the world’s de facto antitrust enforcer. In some respect, however, the EU Commission
has an even greater regulatory capacity than its US counterparts: the Commission is empowered
to prohibit mergers and impose behavioral and structural remedies without first obtaining a court
judgment. Administrative delegation does not reach this far in the US where the agencies need
federal court endorsement to enjoin a merger.49
Critics of the EU’s antitrust activism express their concern for “antitrust multiple-
jeopardy” and condemn the EU’s alleged overreach. Some go as far as to suggest that the EU’s
reluctance to give deference to US antitrust agencies’ decisions in the spirit of comity should
give way to mutual recognition of antitrust decisions.50
This will not happen. The EU will
continue to insist on its right to regulate its own market whenever competition on that market its
affected. The US antitrust authorities know this, conceding that “we recognize that the EU is
entitled to make and interpret its own laws.”51
B. Privacy Regulation
As with antitrust regulation, the EU often sets the tone globally in the regulation of
privacy. The EU has adopted a stricter privacy regulation than the US has.52
In the EU, privacy
is widely regarded as a fundamental right which cannot, therefore, be contracted away.53
The EU
favors comprehensive legislation that establishes privacy principles for both the public and
private sector, enforced by independent regulatory agencies.54
In contrast, the US data privacy
laws are restricted to the public sector and to some sensitive sectors, including health care and
banking.55
The data privacy issues of the private sector are relegated to self-enforcement by the
48
See, for instance, Case COMP/B-2/38.381 – De Beers (the EU required De Beers to stop buying rough diamonds
from a Russian company Alrosa as a commitment in an Art 102 dominance case); Case MN.5984 Intel/McAfee
(Intel undertook to unbundle software and security solutions worldwide as a condition for a merger); Case M.5421
Panasonic/Sanyo (the EU approved a merger subject to an obligation to divest one of parties’ factories in Japan). 49
See discussion on this in Kovacic, supra note 45, at 851. 50
Europe vs. U.S. Business, Editorial, WSJ January 17, 2008. 51
Majoras, supra note 39, at 14. 52
See Mark F. Kightlinger, Twilight of the Idols? EU Internet Privacy and the Post Enlightenment Paradigm, 14
COLUM. J. EUR. L. 1, 5. 53
Id., at 19. Privacy is recognized both in Article 8 of the European Convention for the Protection of Human Rights
and Fundamental Freedoms and in the general principles of European Community Law. 54
See EU Directive 95/46/EC on the Protection of Individuals with Regard to Processing of personal Data and the
Free Movement of such Data (“EU Data Protection Directive”), 1995 O.J. (L 281). 55
See Privacy Act of 1974, 5 U.S.C. 552a. On state privacy acts, see discussion in Gregory Schaffer, Globalization
and Social Protection; The Impact of the EU and International Rules in the Ratcheting Up of U.S. Privacy
Standards, 25 YALE J. INT’L LAW (2000) at 24. The protection of individual privacy was further weakened in the US
in the wake of September 11 when privacy interests gave way to concerns of public safety. See interview of the EU
Commissioner for Justice, fundamental Rights and Citizenship, Viviane Reding, available at
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industry. Individual companies are allowed to create their own privacy policies and consumers
are expected to contract with those companies for the level of privacy they want.56
The EU approach to the protection of privacy rights is spreading outside its boundaries.
Since the EU’s Data Protection Directive was passed, over 30 countries have adopted EU-type
privacy laws, including most OECD countries.57
The US has been an exception, resisting the
EU’s lead in protection of privacy. Still, EU privacy standards affect the business practices of
many US companies. For instance, Yahoo! was prosecuted before French courts for the material
that it made available on its US website because that material was accessible by French
citizens.58
And this is just one example of the many lawsuits against US companies in European
courts.59
The EU believes that its high privacy standards are compromised if the protected data is
made available in other jurisdictions. For this reason, the EU bans the transfer of data from the
EU to third countries that fail to ensure “an adequate level of protection” of data privacy rights.60
What constitutes “adequate” is defined case-by-case by the EU. US companies have strongly
criticized the EU’s regulatory efforts, referring to “unreasonable restraints” on their business
practices and the high costs of compliance.61
Their disapproval is only going to grow as the EU
proceeds to bolster its enforcement efforts with tougher penalties.62
Yet many US corporations
have already, reluctantly, adopted privacy policies that satisfy the EU requirements. Numerous
US corporations have also voluntarily signed onto the EU-US negotiated “Safe Harbor
Principles”, issued by the Department of Commerce after the EU Directive entered into force.63
The Safe Harbor Agreement stipulates that US firms active in the EU market comply with EU
privacy rules even when their data are processed in the US.64
Despite being otherwise “strong-
armed” to the Agreement,65
the US managed to negotiate one important exception: The EU
conceded to allow airlines to transfer passenger records to the US Customs Office in the interest
of US homeland security.66
http://www.theregister.co.uk/2011/06/21/viviane_reding_interview/ (June 21, 2011) (discussing EU-US difference
in approach to privacy protection). 56
See Bach & Newman, supra note 21, at 833. 57
See Bach & Newman, supra note 21, at 833. 58
See Yahoo!’s French connection, THE ECONOMIST, November 20, 2000. 59
See Schaffer, supra note 55, at 43. (discussing, for instance, American Airlines being sued in Sweden after
transferring data from Sweden to US electronic reservation system without prior customer consent). See also US-EU
divergence with respect recent investigations on Google’s Street View, http://www.washingtonpost.com/wp-
dyn/content/article/2010/10/27/AR2010102707827.html (discussing the FTCC’s decision to close its investigation
against Google in sharp contrast to European regulators); 60
See Articles 25 and 31 of the Data Protection Directive and discussion in Schaffer, supra note 55, at 21-23. 61
See Schaffer, supra note 55, at 17-20. 62
Kevin J. O’Brien, “E.U. to Tighten Web Privacy Law, Risking Trans-Atlantic Dispute” (November 9, 2011). 63
International Safe Harbor Privacy Principles, available at http://export.gov/safeharbor/eu/eg_main_018365.asp.
While signing up to the Safe Harbor Principles is voluntary, the signatories are bound by them. Failure to adhere to
their commitments subjects the signatories to FTC enforcement actions under Section 5 of the FTC Act against
unfair or deceptive acts or practices. See
http://www.ustr.gov/sites/default/files/uploads/reports/2010/NTE/2010_NTE_European_Union_final.pdf 64
See Bach & Newman, supra note 21, at 833. 65
David Bach & Abraham Newman, Local Power, Global Reach: The Domestic Institutional Roots of Internet
Governance, STAIR 3, No. 1 at 29 (2007). 66
See Bach & Newman, supra note 21, at 834, 836.
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The non-divisibility of data has further facilitated the globalization of the EU’s privacy
policy. While national regulations may differ from country to country, data “flow lightly and
instantly across borders.”67
Multinational corporations have adjusted their global data
management systems to reduce their compliance costs with multiple regulatory regimes.68
Internet companies find it difficult to create different programs for different markets and,
therefore, tend to apply the strictest international standards across the board. At times, it is
technologically difficult or impossible to separate data involving European and non-European
citizens.69
Other times it may be feasible but too costly to create special websites or data-
processing practices just for the EU.70
As a result, EU rules have prompted several US
companies ranging from Google to General Motors to amend their global privacy practices.71
Indeed, today many multinational companies have only one companywide privacy protection
policy—and it is Europe’s.72
C. Health Protection: Regulation of Chemicals
The Registration, Evaluation, Authorization, and Restriction of Chemicals (“REACH”) is
an EU toxic chemicals regulation that has had a substantial impact on a global scale.73
Chemicals
industry is multinational and the EU is an important destination market for a vast number of
chemicals as well as goods and preparations containing chemicals.
REACH, which was enacted in 2007, builds on an idea of industry responsibility.
Embracing the idea of “no data, no market,” REACH places the burden of proof on
67
See Legal Confusion on Internet Privacy: The Clash of Data Civilizations, ECONOMIST, June 17, 2010, at 2
available at: http://www.economist.com/node/16377097. 68
See Bach & Newman, supra note 64, at 29; Dorothee Heisenberg, Negotiating Privacy: the European Union, the
United States, and Personal Data Protection (2005); Comments of the U.S. Council on International Business
(USCIB) on the Department of Commerce Drat Safe Harbor Principles, available at
http://ita.doc.gov/td/ecom/com1abc.htm (discussing difficulty for companies to comply with two sets of privacy
laws) 69
Ryan Singel, EU Tells Search Engines to Stop Creating Tracking Databases, April 8, 2008 in Wired.com,
available at http://www.wired.com/threatlevel/2008/04/eu-tells-search/ (discussing how EU privacy rules on search
engines’ data retention practices extend to the US “due to technical difficulty of determining whether a particular
user is or isn’t a citizen of an EU country”). 70
Standard Bearers, supra note 1. 71
See Kevin J. O’Brien, Google Data Admission Angers European Officials, N.Y. TIMES, May 15, 2010, at 4
(discussing personal information Google collected through street view); See Legal Confusion on Internet Privacy:
The Clash of Data Civilizations, ECONOMIST, June 17, 2010, at 2 available at:
http://www.economist.com/node/16377097 (discussing changes the EU demanded in Google Buzz, the firm’s social
network service); See Tracy Gray et. al., US and EU Authorities Review Privacy Threats on Social Networking
Sites, 19 ENT. L.R. 69, 69 (2008); See David Scheer, supra
note 1. (Discussing GM’s, DuPont’s and Procter & Gamble’s practice of applying EU-like standards for its
employee data worldwide); See also Mark Berniker, EU: Microsoft Agrees to .NET Passport Changes,
DATAMATION (January 30, 2003);
http://itmanagement.earthweb.com/entdev/article.php/1576901/EU-Microsoft-Agrees-to-NET-Passport-
Changes.htm ; See Kightlinger, supra note 52, at 11. 72
Standard Bearers, supra note 1. (citing Microsoft’s Director of corporate privacy, who confirms that Microsoft
applies one companywide privacy standard and that is the EU standard). 73
Regulation 1907/2006 concerning the Registration, Evaluation, Authorization, and Restriction of Chemicals
(REACH), establishing a European Chemicals Agency, 2007 O.J. (L136) 3.
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manufacturers and importers as opposed to regulators.74
Manufacturers and importers are
required to gather information on the effects that their substances have on human health and the
environment, and to provide this information to EU authorities.75
Another important feature of
REACH is that it was enacted to regulate not only new chemicals that enter the stream of
commerce but also tens of thousands of “existing chemicals” that had been placed on the EU
market before they were regulated.76
According to Commission, these chemicals represent 99
percent of the total substances on the market.77
The implementation of REACH is also guided by
the “precautionary principle”, which lowers the threshold for regulatory intervention.78
REACH represents a stark departure from the US Toxic Substance Control Act
(“TSCA”), which continues to place the burden of proof on regulators.79
While REACH requires
companies to develop information on the safety of their chemicals, the TSCA requires companies
to develop this information only if directed to do so by the Environmental Protection Agency
(“EPA”).80
The EPA also has a high evidentiary burden when requesting safety data, leading it to
restrict or ban very few chemicals.81
TSCA is further weakened by its provision grandfathering
95% of the existing chemicals and thus forgoing any testing with respect to the vast majority of
the chemicals on the market.82
The global spread of REACH has met with resistance at the international level. As the
regulation applies to approximately 30,000 chemicals, its impact on the $600 billion US
chemical industry is profound.83
The critics claim that REACH poses a significant costs and
challenges to manufacturers and importers, particularly in its impact on the supply chain, sales,
and procurement. At worst, the regulation is said to impede innovation and the development of
new substances due to fears that they would not meet the more stringent European
requirements.84
74
See Art 5 of REACH and discussion in Joanne Scott, From Brussels with Love: The Transatlantic Travels of
European Law and the Chemistry of Regulatory Attraction, 57(4) Am. J. Comp. L. (2009), 897, 898. 75
See Doaa Abdel Motaal, Reaching Reach: The Challenge for Chemicals Entering International Trade, 12 J. INT’L
ECON. L. 643, 645 (2009). 76
See the Commission White Paper: Strategy for a Future Chemicals Policy, COM (2001) 88 final (the Commission
refers to the “burden of the past” as a motivation for regulating existing chemicals). 77
Id., Section 2.1. 78
See Article 175 EC Treaty and Case C-180/96 United Kingdom and Northern Ireland v. Commission, 1996
E.C.ER. I-3903, paras. 142-143. 79
Toxic Substances Control Act, Pub. L. No. 94-469, 90 Stat. 2003 (codified at 15 U.S.C.§ 2601-2692). 80
See Motaal, supra note 49, at 647. 81
The EPA needs to provide “substantial evidence” that the chemical presents “unreasonable risk” to health or the
environment, in addition to justifying the regulatory intervention under the cost-benefit analysis. This high standard
of proof has led, for instance, to EPA’s failure to regulate asbestos. See Corrosion Proof Fittings, Inc. v EPA, 947 F
2d 1201 (5th
Circ. 1991). See discussion in Scott, supra note 74. 82
See discussion in Wirth, supra note 15, at, supra note 15, at 102. 83
See Lawrence A. Kogan, Exporting Precaution: How Europe’s Risk-Free Regulatory Agenda Threatens American
Free Enterprise, at 95 Washington Legal Foundation, available at
http://www.wlf.org/upload/110405MONOKogan.pdf; See Mark Schapiro, New Power for ‘Old Europe’, THE
NATION, December 27, 2004, at 12; Scott, supra note 74 at 902. 84
See Anne Pouillot et. al., REACH: Impact on the US Cosmetics Industry?, 8 J. COS. DERM. 3, 5–6 (2009).
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Despite this resistance, REACH is affecting change at a global level.85
Foreign chemical
manufacturers that export a significant amount of chemicals to the EU are switching to REACH
standards to avoid being excluded from the large and lucrative EU market. Since they often find
it cheaper to create a single product for all markets, they have an incentive to produce their
products in accordance with the strictest global standards, which happens to be the EU’s REACH
standard.86
Here the non-divisibility is driven by scale economies in production rather than a
legal or technical inability to produce different products or pursue different conduct in different
markets. Another reason for conforming to REACH is that many downstream users of chemicals
refuse to include substances in their products if they have been identified by the EU as a
“substance of very high concern.”87
In addition to this kind of de facto Brussels Effect, REACH has triggered a more limited
de jure Brussels Effect, prompting an international adoption of REACH style laws. Producers
outside the EU who adopt stricter and more expensive REACH standards in order to export to
the EU have an incentive to pressure their home governments to increase their domestic
regulations to the level of REACH. Since their exports already meet REACH standards, they
could then produce similar products for both markets at a lower cost than could domestic
competitors who do not export to the EU and, therefore, have not yet developed an EU compliant
production processes.88
This process has been reinforced by consumer health and environmental
activists who have embraced the EU regulation and used it as a benchmark in their efforts to
influence domestic debates on the issue.89
In the US, REACH has prompted state level regulatory reforms and the introduction of
Congressional bills seeking to amend TSCA.90
These legislative efforts acknowledge the global
nature of the chemical industry and the existing need for the US companies to comply with
REACH, including collecting the safety information relevant for their production.91
In
California, for instance, the existing informational burden imposed by REACH was seen as a
compelling reason to utilize the same data in California as well. As a result, the California
Department of Toxic Substances Control is now required to use “to the maximum extent
feasible” the safety information generated in other nations in its regulation of chemical products,
including, most importantly, the EU.92
85
Wirth, supra note 15, at 101-103; Scott, supra note 74. 86
See Henrik Selin and Stacy D. VanDeveer, “Raising Global Standards: Hazardous Substances and E-Waste
Management in the European Union” in Environment, Vol. 49, No. 10 (December 2006) p. 8, 14; Joanne Scott,
supra note 74, at 939-940; This is consistent with VOGEL, supra note 4. 87
See Kerstin Heitmann and Antonia Reihlen, Case Study on “Announcement Effect” in the market Related to the
Candidate List of Substances Subject to Authorization: Final Report (January 2007), available at
http://ec.europa.eu/environment/chemicals/reach/background/docs/report_announcement_effect.pdf; see also
Michael Kirscher, Why electronics companies need to worry about REACH, in EE Times supply Network
(September 18, 2007) (discussing the implications of REACH in the entire supply network). 88
See Yoshiko Naiki, Assessing Policy Reach: Japan’s Chemical Policy Reform in Response to the EU’s REACH
Regulation, 22 J. ENV. L. 171, 178 (2010). 89
Scott, supra note 74, at 920-928. 90
Id. at 914-918 (discussing regulatory reforms in Maine and Massachusetts). 91
Id. at 914-921. 92
Id. at 910-914.
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D. Environmental Protection
While REACH is often considered a health measure, its provisions are also directly
geared at protecting the environment. Yet, among the environmental measures spread through
the Brussels Effect, REACH does not stand alone. Before the REACH was adopted, the EU had
already regulated the management of hazardous substances and electronic waste.93
The 2003
Restriction of Hazardous Substances Directive (“RoHS Directive”) bans the release of hazardous
substances into the environment when many common products such as household appliances and
computers reach the end of their useful life. The Commission has this year extended the
Directive to cover all electrical and electronic products.94
The RoHS Directive has been exported to other jurisdiction through both a de facto and
de jure Brussels Effect. Foreign manufacturers exporting into the EU prefer to comply with one
set of standards and thus make their entire production RoHS compliant.95
This has led to a global
change in the design of electronic products.96
In addition, several jurisdictions outside the EU
have adopted RoHS-type laws, including China, Japan and South Korea.97
Also California
responded to the EU’s strict electronic waste regulation by explicitly incorporating EU standards
into its Electronic Waste Recycling Act of 2003.98
The Cal RoHS bans the sale of electronic
devices in California when those devices are banned in the EU and, rather strikingly, also states
that amendments to the EU directive will be incorporated into California law. 99
The EU’s most recent pursuit of environmental unilateralism relates to its emissions
trading scheme (“ETS”). The ETS forms a cornerstone of the EU’s climate change policy. As of
January 1, 2012, the EU will include aviation within this scheme.100
All airlines, including
foreign ones, have to buy emission permits for all their flights that depart from or land at
European airports. This way, airlines cannot limit their compliance to the part of the journey that
93 Directive 2002/95/EC on the restriction of the use of certain hazardous substances in electrical and electronic
equipment. See also a related Directive 2002/96/EC on waste electrical and electronic equipment. 94
See Commission Press Release on the adoption of the new RoHS Recast directive, available at
http://europa.eu/rapid/pressReleasesAction.do?reference=IP/11/912&format=HTML&aged=0&language=EN&guiL
anguage=en (July 20, 2011). 95 See Commission’s Directorate-General for the Environment: “Environment for Europeans” (March 2011) at 10,
available at http://ec.europa.eu/environment/news/efe/pdf/efe42/EN-EFE42-110328.pdf ; See Henrik Selin and Stacy
D. VanDeveer, “Raising Global Standards: Hazardous Substances and E-Waste Management in the European
Union” in Environment, Vol. 49, No. 10 (December 2006) p. 8, 14. 96
See The Press Release on the new RoHS Directive, supra (referring to the Directive having led to “important
changes in product design in the European Union and worldwide”). See also Fujitsu’s statement on its compliance
with RoHS, available at http://www.fujitsu.com/emea/services/components/thermal-printers/rohs.html; Oracle’s
statement of its global compliance with RoHS http://www.oracle.com/us/products/applications/green/rohs-position-
185078.pdf ; Otto Pohl, European Environmental Rules Propel Change in U.S., in NYT (July 6, 2004) (discussing
the global nature of the electronics business and noting that “a multinational that redesigns its product to eliminate a
substance banned in the E.U. often finds it cheaper to sell that product worldwide”). 97 See Selin & VanDeveer, supra, at14-15;
See also http://www.international.gc.ca/canadexport/articles/385484.aspx?view=d 98
See Cal. Pub. Res. Code §§ 42460-42486. 99
See §§ 25214.10 (b) of the California Health and Safety Code and discussion in Scott, supra note 74, at 942. 100
Directive 2008/101/EC of the European Parliament and of the Council of 19 November 2008 amending Directive
2003/87/EC so as to include aviation activities in the scheme for greenhouse gas emission allowance trading within
the Community (OJ 2009 L 8, p. 3).
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takes place in the European airspace, making the scheme non-divisible. For instance, on a flight
from San Francisco to London, only 9% of the emissions are calculated to occur in the EU
airspace (29%, 37% and 25% of the emissions occurring over the US, Canada and the high seas,
respectively). Yet the airline must acquire emission permits for each tonne of emissions emitted
across the entire flight since the point of landing is the EU.101
United Continental and American Airlines, supported by the US Air Transport
Association, challenged their inclusion into the scheme before UK courts, alleging that the UK’s
decision to implement the EU Directive violates international law. The UK Court referred the
question to the European Court of Justice. The Advocate General of the Court issued her
opinion, concluding that the Directive is compatible with international law.102
The Advocate
General did not even find the Directive to be extraterritorial, concluding that “an airport within
the territory of the European Union provides an adequate territorial link for the whole of the
flight in question to be included in the EU emissions trading scheme”.103
Airlines are exempted from the ETS with respect to their flights landing in the EU (but
not with respect to their flights taking off from the EU) if they are subject to “equivalent
measures” in their home jurisdiction.104
Whether domestic climate regulation in the US or China,
for instance, would qualify as an equivalent provision is subject to the EU’s unilateral
decision.105
China, for instance, has already proposed domestic emissions-cutting measures and
asked the EU to consider those as “equivalent” to what the EU requires.106
It is plausible that the
EU’s unilateralism will prompt countries to either adopt tougher domestic climate change
regulations or consider adopting international measures. And even if no such de jure Brussels
Effect takes place, compliance costs with EU rules will likely lead to increasing demands to
design planes with fuel efficiency improvements. It is also doubtful that the airlines would limit
these improvements to planes that fly to Europe but would order entire fleets of planes that allow
them to meet the stricter EU standards more cost-effectively, confirming the de facto Brussels
Effect.
E. Food Safety
The EU’s attempt to regulate Genetically Modified Organisms (“GMOs”) is an example
where the EU has been partially successful in externalizing its food safety regulations but where
the Brussels effect has been incomplete. It therefore offers a particularly interesting case to
examine the relative importance of the various conditions that underlie the Brussels Effect.
101
See Statement of Nancy N. Young, ‘The European Union’s Emissions Trading Scheme: A Violation of
International Law’, pp. 4-5, at: http://republicans.transportation.house.gov/Media/file/TestimonyAviation/2011-07-
27-%20Young.pdf (July 27, 2011). 102
Opinion of the Advocate General Kokot in Case C-366/10, The Air Transport Association and Others (October 6,
2011). The Air Transport Association of America and Others. The full court, that often (but not necessarily) follows
the Advocate General’s opinion, is expected to rule on the matter early next year. 103
Id. 104
See Recital 17 of the Directive 2008/101 amending Directive 2003/87, together with the Preamble to the
Directive. See also discussion in Joanne Scott and Lavanya Rajamani, “EU Climate Change Unilateralism:
International Aviation in the European Emissions Trading Scheme”, available at
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1952554 (November 1, 2011). 105 See Scott and Rajamani, supra. 106
Saqib Rahim, “U.S.-E.U. Showdown Over Airline Emissions Begins Today”, NYT (July 5, 2011).
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The EU and the US take starkly opposing views on the regulation of biotechnology. The
US regards GMO-products as substantially similar to products made using traditional production
methods. They can therefore be cultivated and marketed without extensive pre-market safety
studies or the need to specifically label them.107
In contrast, the EU subjects GMOs to extensive
regulation based on their potential adverse health effects. The GMOs have to go through lengthy
approval process, which entails an evaluation of the risk the GMOs pose to human health and the
environment.108
The evaluation is also guided by the precautionary principle, which justifies
regulatory intervention in the presence of scientific uncertainty.109
The EU further requires that
most authorized foods, ingredients and animal feeds containing over 0.9% of GMOs must be
labeled.110
Several reasons explain the US-EU regulatory divergence.111
The US is the world’s
leading GMO producer whereas GMOs are hardly cultivated in the EU.112
Biotechnology is seen
as a key for retaining the US competitiveness in export markets while the EU places cultural
importance on small-scale farming and remains skeptical of mass production technologies.113
Consequently, the US farmers and the entire biotechnology industry are influential players in the
US political process whereas farmers producing non-GMO crops wield influence in the EU. At
its root, however, lie very different consumer preferences with respect to food safety across the
Atlantic. Survey data show that 62% of Europeans are worried about the food safety risks posed
by GMOs and 71% of Europeans do not want GMOs in their food,114
whereas US consumers
have shown little interest or concern for the issue.115
The above discussion suggests that the EU certainly has the requisite propensity to
regulate GMOs with the strictest standards. Arguably, the EU has also, over time, built the kind
of institutional capacity that would allow it to exercise this regulatory authority.116
GMOs are
107
See Statement of Policy: Foods Derived from New Plant Varieties,” Federal Register 57, no. 104 (May 29, 1992):
22991. 108
Regulation EC 1829/2003 on genetically modified food and feed (September 22, 2003) (2003) O.J. L 268/1 109
See discussion in Joanne Scott, European Regulation of GMOs and the WTO, COLUM. J. EUR. L Vol 9 Spring
2003 No 2. at 219-224. 110
Regulation EC 1830/2003 concerning the traceability and labelling of genetically modified organisms and the
traceability of food and feed products produced from genetically modified organisms and amending Directive
2001/18/EC (September 22, 2003) (2003) O.J. L 268/24. 111
See, however, discussion in Aseem Prakash and Kelly L. Kollman, Biopolitics in the EU and the U.S.: A Race to
the bottom or Convergence to the Top? In International Studies Quarterly, (2003) 47, 617, 629-634 (discussing how
US-EU regulatory approaches may be converging as state level legislative activity and court challenges against
GMO are growing). 112
Id. at 627. 113
Id. 114
See European Comm’n, Special Eurobarometer 238: Risk Issues, at 53 (Feb. 2006), available at http://ec.
europa.eu/public_opinion/archives/ebs/ebs_238_en.pdf; European Comm’n, Eurobarometer 55.2: Europeans,
Science, and Technology, at 40 (Dec. 2001), available at http://ec.europa.eu/research/press/2001/pr0612en-
report.pdf. 115
See discussion in Prakash & Kollman, supra note 111, at 617-641(citing an Environics poll, which reported that
while 78% of Americans support agriculture biotechnology, the comparable figure is Germany was 54%, in France
52%, Britain 36% and Spain 29%.) 116
ABRAHAM L. NEWMAN, PROTECTORS OF PRIVACY (2008), at 147. (Newman argues the regulatory capacity to be
the key variable explaining global regulatory outcomes. He argues that the EU initially had fragmented institutional
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also characterized as falling under inelastic consumer protection regulation, which ensures that
the EU’s regulatory clout cannot be circumvented by moving the regulatory targets to another
jurisdiction. But it is less clear that the other conditions for the Brussels Effect are present. For
US farmers, the EU is only the fifth largest export market and accounts for 8 % of US
agricultural exports.117
Many producers can afford to forgo the EU market, diverting their trade
elsewhere.118
At the same time, an increasing number of other countries are adopting mandatory
labeling schemes for GMO-products,119
which narrows the US farmers’ scope for trade
diversion.
At first glance, it appears that GMOs should also be divisible and thus not amenable to
the Brussels Effect. In principle, the US farmers could separate their production and cultivate
both GMO and non-GMO varieties destined for domestic and export markets, respectively. Yet
such division can be difficult in practice. The GMO crops must be segregated from the time they
are planted throughout the processing and marketing chain. This entails separating growing areas
and preventing pollen drift from GMO fields to non-GMO fields.120
Producers and distributors
must also use separate equipment, storage areas, and shipping containers, and establish trait
identification systems that allow for the tracking of produce from the farm to the consumer.
121
The specific processes through which US farmers gather and transport their crops for distribution
often make their harvests inseparable in practice. 122
At the minimum, separation of production is
costly. This has led some farmers to choose to forgo the risks and costs of separation, and
converge to the strictest standard by only cultivating EU-approved GMO crops—irrespective of
where these crops are sold.123
The practical non-divisibility of production is enhanced by the influence and business
practices of multinational food processors. They are reluctant to make separate batches for the
EU and US and frequently refuse to buy corn that could potentially cause them marketing
problems in the EU. Even if they secured an authorization for their products, the labeling
requirement makes products containing GMOs unmarketable in practice. Thus, the possibility
that a non-EU approved variety can be found within the bulk means that the entire crop is unfit
for sale to multinational food processors that export to the EU. By refusing to purchase even
conventional grain from farmers who also plant GMO varieties, these food processors have
steered some US farmers away from GMO products altogether.124
capacity with respect to food safety, explaining its limited ability to export its preferences globally. However, the
establishment of the European food Safety Agency “could substantially strengthen the European position”). 117
See United States Department of Agriculture, Agricultural Statistics 2010 at xv3 (2010). 118
However, trade diversion may entail the producers being able to sell their crop at a lower price in alternative
export markets. 119
See Prakash & Kollman, supra note 111, at 632. 120
Agricultural Biotechnology: The U.S-EU Dispute, at 5. See also Case C-442/09 Karl Heinz Bablok and Others v
Freistaat Bayern (September 6, 2011) (in a case concerning honey that contained traces of GMOs due to accidental
contamination from GMO-test fields that were 500 meters away, the EU’s General Court confirms that conventional
food that was unintentionally contaminated by GMO-products “must always be regarded as food produced from a
GMO”. The ruling is read as highlighting the difficulty of co-existence of GMO- and conventional agriculture). 121
Agricultural Biotechnology: The U.S-EU Dispute, at 5. 122
See Young, supra note 20, at 467–68. 123
Id., at 467–68. 124
See Mitchener, supra note 2, at 3. See also Wirth, supra note 15, at 104 (referring to the “virtual collapse of the
market for U.S. exports of corn” following EU’s labeling requirements, and noting that US rice and wheat farmers
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Finally, unlike the other fields of regulation discussed above, GMOs are an interesting
test case for the Brussels Effect because it is an area where the US challenged the EU’s
regulatory stance before the WTO and won the trade dispute in 2006. Yet, for the reasons
discussed below in Section V, the negative ruling by the WTO has done little to compromise the
EU’s regulation on GMOs. The EU has failed to comply with the ruling and transatlantic trade
involving GMOs remains restricted. As a result, the US producers of GMO-varieties continue to
feel the (limited) Brussels Effect due to their inability to altogether ignore the EU market and
their dependence on multinational food companies who prefer to cater to a single global standard
and remain sensitive to potential risks and liabilities they may face in the EU.
III. THE EU’S MOTIVATIONS
The EU’s exercise of global regulatory clout can spring from various motivations—both
external and internal. Some commentators argue that the EU’s external policies reflect
“imperialistic” objectives whereas others emphasize the EU’s role as a benevolent hegemon. The
charges of regulatory imperialism appear misguided. A more compelling account shows the EU
as being guided primarily by internal motivations stemming from its need to preserve the single
market without undermining the competitiveness of European companies. Externalization of the
single market also serves the bureaucratic interests of the European Commission and allows for
the maximization of interest group support embracing corporations and consumer advocates
alike.
1. External Motivations
In contrast to the US’s unilateralism in international affairs, the EU is often portrayed as a
champion of multilateral cooperation and universal norms. However, the EU’s commitment to
multilateralism and universalism must be qualified. The EU is an influential global player with
the ability and the willingness to shape the international order to its liking. It seeks to vigorously
promote its interests in the global stage, both unilaterally and multilaterally. In doing so, the EU
acts like any great power with the desire to ensure that international norms reflect its
preferences.125
Some scholars suggest that the EU’s motivations are imperialistic—that the EU is, in
fact, seeking to exert political and economic domination over other countries. 126
The EU has
significant leverage over countries that seek closer cooperation with or, eventually, membership
in the EU.127
But even outside of its immediate sphere of influence, critics maintain that the EU
have steered away from GMO varieties for the same reason). Similarly, multinational restaurant retailers operating
in the EU, including McDonalds, have requested their contract farmers to produce only non-GMO crops to mitigate
consumer backlash in the EU. See Prakash & Kollman, supra note 111, at 632. 125
See Anu Bradford & Eric A. Posner, Universal Exceptionalism in International Law, 52 HARV. INT’L L.J. 1. 126
See discussion on Jan Zielonka, Europe as a Global Actor: Empire by Example?, 84 INT’L AFF. 471, 471 (2008);
JAN ZIELONKA, EUROPE AS EMPIRE: THE NATURE OF THE ENLARGED EU 9–22 (2006) noted in Zielonka supra note
30, at 471 n. 17. 127
See Laidi supra note 27, at 10; Zielonka supra note 30, at 476. The negotiations with candidate countries are
highly asymmetrical, and the countries are presented with the option of adopting the entire body of EU laws and
regulations as a condition for membership or not joining the club
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is engaged in a novel form of imperialism. Instead of pursuing its goals through military and
political instruments, the EU is relying on economic and bureaucratic tools of dominion over
countries that are dependent on access to its vast domestic market.128
Lawrence A. Kogan, in
criticizing the EU’s extensive regulatory reach in environmental and food safety matters, puts it
bluntly: “…the EU has embarked upon an adventure in environmental cultural imperialism. This
is a global practice reminiscent of an earlier European colonial era. And the fact that Europe is
using “soft power” to do it hardly makes it more palatable to people who will be unable to feed
themselves as a result”.129
While critics claim that the EU is exporting its standards without the consent of other
states, the EU counters that it is not engaged in coercion—it is simply enforcing the norms of the
single market equally on domestic and foreign players and merely asking others to play by its
rules when operating on its home market. Still, the EU’s regulatory stance reflects a genuine
desire to shape the global regulatory environment and a conscious pursuit of global influence.130
In its 2007 policy paper “A Single Market for Citizens”, the European Commission envisions the
EU and its internal market to be standard setters at the international level:
“[the EU] has spurred the development of rules and standards in areas such as product
safety, the environment, securities and corporate governance which inspire global
standard setting. It gives the EU the potential to shape global norms and to ensure that
fair rules are applied to worldwide trade and investment. The single market of the future
should be the launch pad of an ambitious global agenda.”131
In describing its global role, the EU legitimizes its strategies by claiming that its values
and policies are normatively desirable and universally applicable. Seen in this light, the EU’s
externalization of its regulatory preferences reflects altruistic purposes of a benign hegemon. As
a champion of norms that serve global welfare, the EU wants to create a rule-based world and
offer an alternative to the more controversial and self-serving worldview advanced by the US.
A commitment to a social welfare state and an attitude towards risk guides the EU’s global
agenda and steers it towards extensive regulation of the global economy—the protection of the
128
See, for instance, discussion in Regulatory Imperialism, supra note 1 (the WSJ Editorial is referring to the EU
“trying to force the rest of the world to play by its cumbersome rules” as well as “imposing its regulatory vision on
other jurisdictions by setting the toughest standards”). See also Europe v. U.S. Business, WSJ January 17, 2008 s
(the WSJ Editorial discussing EU antitrust enforcement and calling for Washington to “wake up to Europe’s
regulatory imperialism” ), 129
See Kogan, supra note 52, at 98–99; Peter F. Drucker, Trading Places, NAT’L INT., Spring 2005, at 101. 130
According to polls, 70% of Europeans want Europe to assume this role. See Benito Ferrero-Waldner, The
European Union: a Global Power?, Speech delivered at George Bush Presidential Library Foundation and Texas
A&M University EU Center of Excellence, College Station, Texas, (Sept. 25, 2006); European Commission,
Taking Europe to the World: 50 Years of the European Commission’s ‘External Service’, DG External Relations
Brussels 59 (2004); Alaisdair R. Young & John Peterson, The EU and the New Trade Politics, 13 J. EUROP. PUB.
POL. 795, 795–96 (2006). 131 Communication from the Commission to the Council, the European Parliament, the European Economic and
Social Committee and the Committee of the Regions - A single market for citizens - Interim Report to the 2007
Spring European Council /*COM/2007/0060 final */ See also the Commission’s justification for its decision to
include aviation, including foreign carriers, into its emission trading scheme at
http://ec.europa.eu/clima/policies/transport/aviation/index_en.htm (“The intention is for the EU ETS to serve as a
model for other countries considering similar national or regional schemes, and to link these to the EU scheme over
time. Therefore, the EU ETS can form the basis for wider, global action”).
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environment, health care, precaution in the field of biotechnology, and various welfare rights.
By emphasizing the universal benefits of its global regulatory agenda, the EU often succeeds in
obscuring the de facto unilateralism that drives its implementation.
EU’s active role in the fight against climate change presents one example of regulation
that is, presumably, driven by largely benevolent motives. Climate change is a global problem
that requires a global response. The EU has a limited capacity to halt climate change alone if
other states continue to emit greenhouse gases into the atmosphere. The EU has led efforts to
conclude a new and more potent global climate change treaty.132
Yet the difficulties associated
with international treaty negotiations have given the EU the imperative to act unilaterally.133
The
EU’s defense of its unilateral regulation is that it is acting in the collective interest to provide a
global public good: mitigation of climate change.134
The EU also emphasizes the strong democratic backing for its regulatory stance. The
European Commission has described the EU’s commitment to further its social agenda as part of
its trade policy as “forging collective preferences”—cultivating the idea that the EU is, indeed,
concerned about the social effects of economic integration and justifying its measures against
foreign entrants as legitimate policies reflecting social choices made collectively by
Europeans.135
The EU’s own experience in creating a common market reinforces the EU’s pursuit of a
global order based on predictable rules. In forming the EU, the Member States retained their
sovereignty. The only way to bind them to the common European enterprise was to have them
adhere to common rules designed to create an internal market.136
More regulation meant more
predictability and stability. This has fostered a belief that an extensive regulatory system is
needed to preserve global public goods. The EU takes the view that trade liberalization without
simultaneous harmonization of policies fails. This, for the EU, offers the most efficient and
universally valid model of economic and political integration.137
Yet even if the EU was able to portray itself as a benevolent, normative power that is
advancing universal norms,138
skeptics point out that the notion of a normative power has neo-
132
See Press Release, European Commission, The Copenhagen climate change negotiations: EU position and state
of play MEMO/09/493, Sept. 11, 2009, available at
http://europa.eu/rapid/pressReleasesAction.do?reference=MEMO/09/493&format=HTML&aged=0&language=EN
&guiLanguage=en. 133
See discussion, supra p 19-20. 134
See Regulatory Imperialism, WALL ST. J., Oct. 26, 2007 at 1; Clean-air turbulence: Europe is right to include
airlines in its emissions-trading scheme, ECONOMIST, July 9, 2011 135
See Meunier & Nicolaidis, supra note 23, at 921–922. See Jurgen Habermas, Why Europe Needs a Constitution,
in: The Shape of the New Europe (eds. Ralf Rogowski and Charles Turner) (2006) (arguing that social regulation is
part of the European tradition). This is often referred to as an “embedded liberalism” compromise. See John G.
Ruggie, International Regimes, Transactions, and Change: Embedded Liberalism in the Postwar Economic Order,
36 INT’L ORG. 379, 392–98 (1982). 136
See Laidi supra note 27, at 4. 137
See Zielonka supra note 56, at 475. 138
See Ian Manners, Normative Power Europe: a Contradiction in Terms?, 40 J. COMM. MARKET STUD. 235, 235–58
(2002); MARK LEONARD, WHY EUROPE WILL RUN THE 21ST CENTURY (2005); Karen E. Smith, Still Civilian Power
EU, European Foreign Policy Unit Working Paper, London School of Economics (2005).
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colonial undertones as the EU is exporting its “standards of civilization”.139
In the end, any
entity that is willing to shape the international order—whether for self-serving or more altruistic
motives—must do so with the means available to it. In the case of the EU, regulatory power is
all it has. Lacking traditional means of power, the EU’s greatest global influence is
accomplished through the norms that it has the competence to promulgate. In the absence of
military power or unconstrained economic power, the EU can exercise genuine unilateral power
only by fixing the standards of behavior for the rest of the world. 140
2. Internal Motivations
For those skeptical of the EU’s benevolent motives, the EU is simply seeking to level the
playing field by exporting its costly regulations abroad under the guise of concern for consumer
and environmental health and safety.141
According to the Czech president Vaclav Klaus, “the
claims for quasi-universal social rights are disguised…attempts to protect high-cost producers in
highly regulated countries, with unsustainable welfare standards, against cheaper labor in more
productive countries.”142
A compelling explanation is that the EU’s global regulatory agenda is tied to its
economic interests and driven primarily by its concern for competitiveness.143
Europe is
committed to the welfare state and the sustainability of its economic policies. Yet the failure to
export its standards to others would put European firms at a competitive disadvantage.144
By
acting as a global regulator, the EU can defend its social preferences without compromising the
competitiveness of its industries. The worry about EU airlines’ competitiveness was explicitly
included as a rationale to include foreign airlines into the EU’s emissions trading scheme.145
If
foreign companies adhere to EU norms on the European market, the import-competing industries
are assured a level playing field. If the EU’s norms further spread to third countries, the EU can
ensure that its export-oriented firms are not disadvantaged in those markets.
139
Kalypso Nicolaidis & Robert Howse, This is my EUtopia: Narrative as Power, 40 J. COMM. MARKET STUD. 767,
767–92 (2002); Thomas Diez, Europe’s Others and the Return of Geopolitics, 17 CAMB. REV. INT’L. AFF. 319, 319–
35 (2006). 140
See Laidi supra note 27, at 4. 141
See Kogan, supra note 52, at 3. 142
See Zielonka supra note 56, at 482–483. 143
See Commission communication of 1 June 2011, “A strategic vision for European standards: Moving forward to
enhance and accelerate the sustainable growth of the European economy by 2020”, COM(2011)311 final (“It is
especially vital that in areas where Europe is the driving innovation force in developing new types of tradable goods,
services and technologies […]that the creation of the European standard be carried out rapidly with the aim of
asserting it as an international standard. This would maximise first mover advantage and increase the
competitiveness of European industry) 144
Emma Tucker, Plastic toy quandary that EU cannot duck, FT (December 9, 1998) (discussing the Commission’s
attempt to reconcile its two central functions—demands for consumer protection and competitiveness of European
industry). 145 See, for instance, Saqib Rahim, “U.S.-E.U. Showdown Over Airline Emissions Begins Today”, NYT (July 5,
2011) (referring to the Commission’s spokesman Isaac Valero-Ladron defending the EU’s inclusion of foreign
airlines into the EU’s ETS scheme: “We can't impose a burden only to European airlines and not include others
…[i]t would be distortion of competition”).
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In fact, the Brussels effect can be seen as a desire to level the playing field at two levels.
First, a group of individual EU member states advocates EU-level legislation to ensure that their
higher domestic standard does not prevent them from competing with corporations subject to
lower standards in other EU member states. For instance, Germany, Netherlands and the Nordic
countries were the pioneers of the EU’s environmental regulation.146
Similarly, regulators in
France and Germany were some of the key member states who exported their privacy regulation
upward within the EU.147
These countries leveraged their regulations at the EU level by calling
for harmonized, community-wide standards. Thus, the regulatory preferences of a small number
of EU member states first become entrenched in EU legislation and then the Brussels Effect can
transmit them to third countries.
The push for externalization of EU standards is also reinforced by a peculiar constellation
of domestic politics, whereby environmentalists or consumer advocates and corporations join
forces in lobbying for the globalization of EU standards. While often in disagreement, both
environmentalists and corporate interests benefit from the EU imposing its standards on foreign
firms. Environmentalists gain broader adherence to norms that they support—many of which
have an inherently global character. At the same time, EU corporations gain a level playing field
whereby foreign firms do not gain a competitive advantage at their expense.148
One example of
such an alliance was a coalition between EU corporations and environmental groups regarding
the EU’s Eco-management and auditing scheme (EMAS), which regulates public disclosure of
corporations’ environmental improvement record. Already subject to the disclosure obligations,
the EU corporations teamed up with environmental NGOs to lobby for the adoption of the same
standards by US and Asian corporations. In the end, the campaign was successful and the
European standards were converted into global standards by the ISO.149
Thus, the EU has a
particularly powerful incentive to act externally when the moral and economic imperatives of the
community coincide—when it enjoys political rents from EU industry and the consumer and
environmental advocates at the same time.150
While it seems evident that the EU is concerned about its corporations’ competitiveness
and eager to respond to strong domestic pressures calling for the globalization of its standards,
the EU’s external influence can also be viewed as an accidental byproduct of its internal
motivations. The supranational regulatory apparatus was created to establish and oversee an
integrated, liberalized, and competitive market in Europe. This institutional capacity was a
response to internal challenges driven by a political agenda that was inward looking.151
The
external dimension of the single market was only fully realized when the EU’s trading partners
146
See Henrik Selin and Stacy D. VanDeveer, supra at 10-11 (discussing this phenomenon inside the EU in
connection with environmental regulation). 147
NEWMAN, supra note 116, at 11. 148
ELIZABETH DESOMBRE, DOMESTIC SOURCES OF INTERNATIONAL ENVIRONMENTAL POLICY: INDUSTRY,
ENVIRONMENTALISTS, AND U.S. POWER (2000). 149
See Walter Mattli & Ngaire Woods, In Whose Benefit? Explaining Regulatory Change in Global Politics, in THE
POLITICS OF GLOBAL REGULATION, at 35 (Walter Mattli & Ngaire Woods eds., 2009). 150
See DAVID VOGEL, TRADING UP: CONSUMER AND ENVIRONMENTAL REGULATION IN A GLOBAL ECONOMY, 67
(1995). 151
See, for instance, discussion in Gregory Schaffer, Globalization and Social Protection; The Impact of the EU and
International Rules in the Ratcheting Up of U.S. Privacy Standards, 25 YALE J. INT’L LAW (2000) at 10-
13.(discussing the link between EU Data Protection Directive and EU Trade liberalization)
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expressed concerns that the single market might lead to protectionism vis-à-vis third countries.152
Thus, while the primary objective of European regulatory activity has been to create and guard
the single market, this activity has had the ancillary effect of establishing the EU as a global
regulatory hegemon. Acknowledging this also suggests that the EU’s external influence is not
compromised during times when it is turned inwards—the external power flows directly from the
EU’s pursuit of its internal goals.
Finally, the EU’s external regulatory power can be as much a reflection of the
bureaucratic interests of the European Commission as it is the economic interests of Europe as a
whole. The European Commission is the executive arm of the EU. Through extensive use of its
regulatory powers, the Commission is compensating for the lack of power it otherwise has in
external affairs. The Commission’s legal competence to act on its Member States’ behalf in
foreign policy or security related matters is limited and subject to unanimity among the Member
States. On issues relating to the single market, the EU’s legal authority is at its broadest. For
instance, imposing economic sanctions requires a unanimous decision in the European Council,
which subjects such a decision to a veto by any of the 27 member states. At the same time, the
Commission has been delegated the power to take all measures necessary to create and maintain
the single market.
Expanding the Commission’s regulatory authority also involves low costs. Regulations
are not constrained by budgetary appropriations and are hence not dependent on the tax revenues
available to the Community institutions. This is significant given that the EU’s budget amounts
to less than 1.3% of the GDP of the EU.153
This gives the Commission limited options to pursue
policies that involve direct budgetary expenditures. The EU does not have the funds to provide
significant public goods or services or finance a large-scale industrial or innovation policy at the
Community level. Thus, the only way for the Commission to exert influence without extensive
financial resources is to engage in regulatory activity. The cost of complying with these
regulations is primarily borne by firms and individuals as targets of the EU regulations. And the
costs involved in implementing and enforcing regulations often fall on the governments of the
individual member states. Historically, vesting the Commission with so much regulatory power
might have been unintentional: the EU Member States wanted to restrict the powers of the
Commission through tight budgetary discipline. Yet in the absence of traditional powers of
states to tax and spend (not to mention wage a war), the Commission has built an empire of laws
and regulations.154
IV. MARKET-DRIVEN VERSUS POLITICAL HARMONIZATION
The above discussion has focused on the conditions under which the Brussels Effect
generates global standards, and the EU’s motivations to externalize its regulations through this
process. However, unilateralism is not the exclusive path for global standards. It is more
accurate to think that there are different paths to regulatory convergence, all of which operate in
152
See Sieglinde Gstohl, Political Dimensions of an Externalization of the EU’s Internal Market 4 (DEP. EU INT’L
REL. & DIPL. STUD., EU Diplomacy Papers, 2007), available at
http://aei.pitt.edu/9593/1/EDP_3-2007_Gst%C3%B6hl.pdf. 153
This can be contrasted to the US federal government spending, which exceeds 20% of the GDP. 154
See Majone, supra note 24, at 85 & 98.
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parallel. The EU also exerts influence outside its borders through bilateral agreements—most
glaringly, though accession agreements and partnership treaties155
—and via its prominent role in
international organizations and standard settings organizations.156
At times, EU rules diffuse
more informally and lead to legislative borrowing through various benchmarking mechanisms.157
This Section compares and contrasts two identifiable avenues for regulatory
globalization: the EU’s pursuit of regulatory convergence through treaties and institutions
(political harmonization) and the EU’s unilateral reliance on the Brussels Effect to spread its
norms (market-driven harmonization). This section argues that unilateral, market-driven
harmonization has distinct advantages over political harmonization. It then seeks to explain
why, despite these unambiguous advantages, the EU continues to embrace multilateralism and
pursue political harmonization in some instances.
A. The Relative Advantages of Unilateralism
Market-driven harmonization has a distinct advantage over political harmonization: it
entails low contracting costs and limited enforcement costs. In relying on unilateral measures,
the EU is not forced to seek the consent of other states. Unilateralism avoids the need to
overcome collective action problems or the need to extend costly transfer payments or undertake
costly coercive measures towards countries reluctant to join a treaty or an institution. The EU
can also forgo the uncertainties associated with the ratification of treaties by foreign legislators.
The EU’s recent, unsuccessful efforts to further the WTO’s Doha Round negotiations and the
UN-led process to negotiate a new global climate change treaty reveal the difficulties associated
with multilateral cooperation. These processes have required extensive political capital and
diplomatic efforts and yielded few results. Instead of engaging in burdensome diplomacy to
endorse its standards, market-driven harmonization allows the EU to outsource the lobbying to
foreign firms who often become advocates for higher standards in their own home markets after
having incurred compliance costs in the EU.
The EU’s unilateral regulatory agenda is more easily implemented as it requires the
cooperation of foreign corporations willing to trade in its market rather than cooperation by
foreign sovereigns. A contrast can be drawn to the efforts of the SEC and the US State
Department to enforce US rules on insider trading. These efforts were complicated by the
reluctance of foreign countries, particularly Switzerland, to cooperate with the US due to their
domestic laws on bank secrecy. The US has had to spend extensive political capital to persuade
155
On conditions that prospective member states must meet, see http://ec.europa.eu/enlargement/the-
policy/conditions-for-enlargement/index_en.htm
See also “Wider Europe— Neighbourhood: A New Framework for Relations with our Eastern and Southern
Neighbours” COM (2003) 104 final. 156
See Walter Mattli and Tim Buthe. Settings International Standards: Technological Rationality or Primacy of
Power? 56 WORLD. POL 1, 22 (2003). 157
On theories that highlight the central role of experimentalism, benchmarking and legislative borrowing in shaping
global regulatory environment See, for instance, Charles F. Sabel and Jonathan Zeitlin, Learning from Difference:
the New Architecture of Experimentalist Governance in the EU, European Law Journal, Vol 14, No 3 (May 2008),
pp. 271-327. An example of how adoption of a high regulation in the EU can help build political pressure for a
regulatory reform in the US, see Katerina Linos, Diffusion through Democracy, 55 American Journal of Political
Science 678 (2011) (arguing how a key argument for the passage of the maternity leave in the US was that Europe
and Japan already offered this benefit).
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Swiss authorities to cooperate. This was considered worth the effort given that Swiss banks hold
approximately half of the world's private assets.158
The US’s ability to curtail domestic insider
trading would have been compromised had it not secured a change in the domestic rules of a
foreign country. Merely incentivizing foreign corporations operating in the US to cooperate was
not sufficient to meet this goal.
Political harmonization is particularly difficult if states do not agree on the benefits of
global standards. But multilateral standard-setting is difficult even if most states agreed on the
benefits of uniform standards. States often have different views on the optimal standard to which
they should converge. Different points of convergence entail different distributional
consequences, making some states prefer one standard over another.159
Unilateral regulatory
globalization avoids such coordination problems: the most stringent rule becomes the focal point
of convergence. A mutual understanding that the EU can retain its standards at no cost provides
a predictable and stable equilibrium.
Perhaps most importantly, market-driven harmonization provides the most efficient form
of regulatory globalization because the EU can rely on its existing domestic institutions to
enforce its regulations. Treaties are distinctly difficult and expensive to enforce. When a strict
global standard is a product of an international treaty, there is no guarantee that the treaty is
implemented and enforced. The treaty on the world’s marine fisheries is one of the many
examples of negotiated global standards that fail to accomplish their goals: the treaty has not
been successful in addressing the problem of over-fishing and propelling sustainable
management of fishing stocks. And this is not an anomaly in the world of global standards
embedded in difficult-to-enforce treaties. Indeed, some commentators have noted that treaties
producing “effectively enforced international standards are the exception rather than the rule.” 160
B. Reasons for Persisting Multilateralism
Given the many benefits of unilateral globalization, why does the EU still pursue
multilateral standards in many areas, whether by directly influencing other states or pursuing
multilateral solutions within an international institution? There are certain instances where
market-driven harmonization is not enough, prompting the EU to seek affirmative adoption of
regulation by foreign regulators. When above-discussed conditions for unilateral harmonization
are not present, no Brussels Effect takes place (whether de jure or de facto). In these situations,
multilateralism is often the only path to regulatory globalization.
The theory underlying the Brussels Effect offers some further predictions on when the
EU is likely to pursue political harmonization. The EU would be expected to seek political
harmonization when the Brussels Effect fails to reach EU corporations’ important export
markets. In the absence of a level playing field, the EU’s export-oriented firms may have
difficulties penetrating these markets. Thus, when the EU is a net exporter as opposed to a net
158
See Macey, supra note 10, at 1368–69. 159
See Anu Bradford, The International Antitrust Negotiations and the False Hope of the WTO, 48 HARV. INT’L383
(2007). 160
See Christopher Carr & Harry Scheiber, Dealing with a Resource Crisis: Regulatory Regimes for Managing the
World’s Marine Fisheries, 21 STAN. ENVTL. L.J. 45, 76–79.
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importer of a certain product, the EU is expected to care more about the standard of the export
market than that of its home market. Further, it is precisely then that the Brussels Effect is least
likely to automatically ratchet the standard up (since the net importer countries have a smaller
presence in the EU). The EU is therefore likely to expend diplomatic efforts to negotiate
multilateral standards in areas where it is a net exporter and rely on markets in areas where it is a
net importer.
The EU may also be motivated to encourage third countries to adopt certain standards if
its internal regulatory objectives would be compromised by more lenient standards elsewhere.
This is true when actions of other countries produce negative externalities that adversely impact
Europe e.g., when China’s failure to limit its GHG emissions directly compromise the EU’s
efforts to halt climate change. Another example would be the EU’s efforts to convince other
countries to adopt tough domestic antitrust laws. The deterrent effect of the EU’s antitrust laws
can be compromised if members of a cartel are able to offset high EU fines by reaping supra-
competitive profits in markets that fail to control their collusive practices.161
Foreign standards
may also reinforce the desired effect of EU standards, for example, when standards are
characterized by network effects i.e., benefits relative to the costs of adopting a standard increase
when several countries have the same standard.162
The EU may also seek to encourage third countries to adopt its standards in cases where
it is acting out of a moral imperative. If the EU is motivated by a moral quest to change behavior
globally—e.g., promote human rights—unilateral globalization is rarely sufficient. This is
particularly likely when the issue is salient to influential domestic political groups that seek to
export an ideology or moral convictions and when they care about establishing standards for
universal conduct.163
Finally, at times the EU may pursue political harmonization even when market-driven
harmonization is taking place. This may reflect willingness to “lock-in” certain EU standards by
institutionalizing them.164
This can be a shrewd way to pre-empt a future state of the world
where market access will be a less effective tool for the EU to exert influence. The EU is also
often successful in incorporating its standards into international organizations, making the
benefits of unilateralism over multilateralism less stark. Being a construction of
161
The EU is not the lone aggressive regulator of cartels. The US takes equal tough stand vis-à-vis collusive
practices of firms than the EU does. Indeed, the US has more invasive investigatory tools and remedies at its
disposal than the EU does, due to more extensive discovery rules in the US and the US authorities’ ability to pursue
criminal penalties. Third countries’ agencies can often free-ride on the US and the EU authorities’ investigations.
Yet both agencies can see their laws’ deterrent effect be diluted if cartels can freely operate in third markets. See
e.g. discussion in Empagran [add]. 162
See Vogel & Kagan, supra note 2, at 13. (However, these standards are more likely to spread unless the main
economic activity is taking place on export markets). 163
See Macey, supra note 10, at 1369. 164
The European Commission has stated that “the EU aims at global standard setting by promoting ‘the adoption
overseas of standards and regulatory approaches based on, or compatible with, international and European
policies.’” Gstohl, supra note 75, at 19 (construing European Commission, Implementing Policy for External Trade
in the Fields of Standards and Conformity Assessment: a Toolbox of Instruments 8 (Commission Staff Working
Paper, 2001). ); See European Commission, Communication from the Commission to the Council, the European
Parliament, the European Economic and Social Committee and the Committee of the Regions “A Single Market for
Citizens” (Interim report to the 2007 Spring European Council, 2007).
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intergovernmental cooperation itself, the EU has extensive experience in promulgating rules that
lend themselves to adoption by heterogeneous states. The EU is also skillful in using its
institutional structure—being a hybrid between state and a federation—to its advantage. In
international negotiations, it can leverage the negotiating power of 27 countries but use the same
number strategically as a constraint when portraying itself as an agent whose hands are tied and
who can therefore only sign onto a set of policies that pass the various domestic veto points.165
Market-driven and political harmonization can also take place in sequence. The EU is
better able to institutionalize its standard if a limited Brussels Effect has already taken place: The
EU first increases its sphere of influence within its neighborhood by requiring its standards to be
adopted as a condition for closer economic and political relationship with the EU. It is then
easier to later reach a critical mass that tips the balance in Europe’s favor in any international
efforts to reach an agreement on harmonization of certain regulation.166
V. LIMITS OF THE BRUSSELS EFFECT
The Brussels Effect is not unlimited. A set of external and internal constraints impose
boundaries on the EU’s ability to leverage its market size and foist its regulatory preferences on
other states and market participants. This Section discusses the relative ability of markets, the
EU’s trading partners, and international institutions to constrain the “Europeanization” of global
economic activity. It concludes that these forces and actors have a limited ability to temper the
EU’s regulatory agenda. Instead, the more powerful constraints come from within the EU itself.
A. External Constraints
1. Markets
Conventionally, we think that markets are able to punish inefficiently stringent
regulators. An economic theory of regulatory competition among jurisdictions would suggest
that if the EU’s regulatory standards are too high, it would lose business and foreign investment
to jurisdictions with more attractive regulatory environments. But this assumption is based on
the premise that the targets of the regulation are mobile. When a state regulates targets that are
inelastic—as is the case in the EU’s regulation of consumer markets—markets have a limited
ability to punish for any regulatory excesses. Consumers are likely to stay in Europe and
businesses have the choice of either providing them with goods conforming to EU standards or
forgoing the entire market. They rarely opt for the latter.
However, over time, the EU’s regulatory clout may gradually erode as the emerging
markets increase in the size and affluence of their consumer base. Today, corporations are rarely
able to carve out the EU as a market for their products and services and divert trade elsewhere.
165
See Safrin, supra note 82, at 1324–27. 166
In a similar vein, Wirth argues that de facto convergence of regulations and business practices increases the
likelihood of regulatory consensus and thus paves way for international harmonization. See Wirth, supra note 15, at
106; See also Bradford, supra note 159, at 439 (arguing that increased convergence may pave the way for an
international antitrust agreement but also noting the declining net benefits of an such an agreement after de facto
harmonization has taken place).
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But as demand in places like China grows, the businesses’ dependence on their access to the EU
market is diminishing. It is difficult to imagine a future state of the world where genuinely
multinational companies like GE would choose to forgo trade in Europe and thus avoid clearing
its transactions and conduct with EU’s antitrust authorities. But the opportunities for trading
elsewhere will increase, reducing the opportunity costs of forgoing the European market at least
with respect to some products and activities. China will increasingly be in a position to offer an
alternative destination for various goods if European standards make it too costly for businesses
to trade there.
Still, the growing might of Chinese consumers is an imperfect threat, at best, to a near
term ability of the EU to continue on its chosen path. It will be a while before China could
replace the EU as a source of new trump-standards. China’s regulatory capacity and the
willingness to elevate the protection of consumers and the environment over the pursuit of
growth are not growing with the speed of its economy. While China has banned a few high
profile global mergers, it has by no means overtaken the European Commission as the most
ardent guardian of competitive markets. And while China may soon be the largest consumer
market, GDP per capita is a better prediction of a country’s regulatory propensity than overall
GDP is. Affluence and social regulation are often correlated, suggesting that domestic demand
for high levels of regulation is likely to be weak for some time to come.167
By the time China
might be able to overtake the EU, the EU might already have entrenched its norms in other
jurisdictions and institutions by changing the way business is conducted in a lasting way.
2. Other States
Other states, including the US, have an incentive to constrain the EU. The EU policies
impose adjustment costs on US corporations.168
The US consumers also end up paying more for
goods when producers are forced to accommodate concerns that US consumers do not
necessarily share. The US frequently views the EU’s regulatory policies as inefficient and
detrimental to its welfare—in addition to being counter-majoritarian and thus undemocratic.
Prompted by the American chemicals industry, the US government engaged in extensive efforts
to block the REACH regulation.169
The US’s reaction to the EU’s interventionist antitrust laws
has been equally hostile.170
And the recent plan to subject foreign airlines to the EU’s ETS
system has been vehemently opposed by US airlines and the US government, as well as other
foreign governments.171
167
See Vogel & Kagan, supra note 2, at 9. 168
Of course, it is plausible that some corporations benefit from their adherence to strict EU standards. Compliance
with EU rules may be a way to signal high product quality or commitment to high standards of consumer protection. 169
See H.R. Comm. On Government Reform (Minority Staff) A Special Interest Case Study: The Chemical
Industry, the Bush Administration, and the European Regulation of Chemicals (April 1, 2004), available at
http://www.democrats.reform.house.gov/Documents/20040817125807-75305.pdf 170
See Matt Murray et. al., Oceans Apart: As Honeywell Deal Goes Awry for GE, Fallout May Be Global ---The
U.S. Giant’s Troubles In Europe Could Chill Mergers of Multinationals --- Raining on Welch’s Parade, Wall St. J.,
June 15, 2001, at 1 (discussing how the result of the GE/Honeywell agreement might chill merger activity among
other US multinationals interested in expanding globally). 171
See the ECJ case, supra. See also Joshua Chaffin and Andrew Parker: “Blow to US Airlines in the Emissions
Fight”, FT.com (October 6, 2011) (mentioning how 21 countries have opposed the inclusion of non-EU airlines into
the EU’s ETS scheme and how there have been several threats of retaliation and how China has threaten to cancel a
contract for ten planes made by European manufacturer Airbus. India has similarly threatened with retaliation).
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But there is very little the US can do to stop the EU from regulating its domestic market.
In this sense, the Brussels Effect differs starkly from the California Effect: California cannot
promulgate regulations that are inconsistent with federal laws. But there is nothing akin to a
doctrine of pre-emption that constrains the EU’s regulatory powers.172
When the US producers
are forced to either comply with higher standards or be shut out of the EU market, the US has
four ways to respond: the US can 1) choose to voluntary converge to EU standard; 2) try to
compel the EU to change its rules (i.e., by resorting to diplomacy, suing the EU in the WTO or
offering the EU some rewards or threatening the EU with sanctions); 3) seek a cooperative
solution (e.g., pursuing an international standard that reflects some combination of US and EU
preferences); or, finally, 4) choose to do nothing. 173
The most controversial strategy for the US or any other foreign government would be to
threaten the EU with sanctions. However, the prospect of a trade war is often too costly for the
countries themselves to pursue as a strategy. In many instances the proposed trade sanctions
would also be inconsistent with the countries’ obligations under the WTO.174
In past US-EU
antitrust enforcement conflicts, for instance, the US threatened the EU with trade sanctions
unless the EU backed down.175
Yet notwithstanding the escalated rhetoric of retaliation, the
antitrust controversies led the US government to concede that “we have no power to change EU
law.”176
A further challenge for the US is that it often gains nothing by defending its standard
even if that standard was more efficient—as a less stringent regulator, the US simply becomes
obsolete in the fields where the de facto Brussels Effect takes place. But the US is unlikely to
adopt the EU standard as a regular course of action either. If we assume that the existing
domestic regulation in the US is efficient in the sense that it maximizes national welfare and
reflects domestic political equilibrium, any deviation from that standard entails costs. Firms
need to reorganize their production processes or practices in order to comply with another
standard.177
Governments incur costs relating to legislating and retraining its regulators.178
And,
most importantly, the US must forgo the efficiencies that its preferred regulation would generate.
When holding onto its own domestic standards, the US can at least ensure that its standard
governs the activity that is domestic in nature. And given how large the US market is, this often
provides an adequate incentive to stick to its preferred regulation domestically absent
overwhelming lobbying by domestic export-oriented industries to the contrary.
172
For instance the Bush Administration preempted California’s regulations on GHG emissions. See 42 U.S.C. §
7543(a) (2006). The EPA also denied California’s first application for a preemption waiver. See Letter from Stephen
L. Johnson, Administrator, EPA, to Arnold Schwarzenegger, Governor of California (Dec. 17, 2007), available at
http://ag.ca.gov/cms_attachments/press/pdfs/n1514_epa-letter.pdf. 173
See Young, supra note 20, at 459. 174
Id. 175
See, for instance, Brian Coleman, U.S. May retaliate if EU Rejects Boeing Merger, wall St. J. July 18, 1997
(reporting that President Clinton threatened the EU with unilateral trade sanction or a WTO challenge if the EU
were to block the deal). 176
Majoras, supra note 39, at 14. 177
See Drezner, supra note 7, at 845. 178
See id.
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The US may also find that even in the absence of its ability to defend its corporations
from the EU’s standards, its vocal criticism of those standards leads the EU to critically evaluate
and revise some of its regulations. The US’s persistent and strongly voiced criticism of the
banned GE/Honeywell transaction led the EU to pursue more sophisticated economic analysis in
its future merger investigations. However, few in the US believe that the uncertain prospect of
fostering changes through “feedback effects” that may (or may not) influence some areas of the
EU’s policy constitutes a satisfactory response to the loss of US’s regulatory autonomy. Yet the
alterative options are limited.
The somewhat surprising outcome is that the EU’s increasing regulatory clout and its
impact on US businesses may lead the US to support greater oversight by international
institutions. Though often skeptical of international institutions’ ability to regulate the markets,
the US may come to see international cooperation as an opportunity to play a shared, rather than
obsolete, role in the regulation of global commerce. This might resemble the idea of “pre-
emptive federalism”, whereby the US may seek international regulation as a means to prevent
the Brussels Effect. Having some influence over regulatory standards is better than ceding
influence to the EU altogether.179
But this, of course, requires that the EU be prepared to forgo
unilateralism for multilateralism, enhancing EU’s bargaining power in any such negotiations.
At the same time, foreign states’ responses are complicated by the fact that some foreign
stakeholders welcome the EU’s extensive regulatory activity. For instance, the intensity of the
US corporations’ opposition to EU rules likely depends on whether they are large, export-
oriented producers or small, non-export-oriented producers.180
If an export-oriented US firm is
forced to adjust its global production to the (presumably more costly) EU-standard, the non-
export-oriented US firm gains a competitive advantage in the firms’ home market (the only
market in which the non-exporting firm operates). The small non-exporting firm thus welcomes
the de facto Brussels Effect. However, these firms’ interests are reversed with respect to a
possible de jure Brussels Effect. An export-oriented US firm often has the incentive to advocate
the EU standard in its home market after having already adjusted to the EU-standard. It benefits
from leveling the playing field at its home market at no additional cost to itself. In contrast, a
non-export-oriented US firm is likely to resist the de jure Brussels Effect as it benefits from
retaining its competitive advantage over the firm conforming to the EU standard. Thus, the
relative influence of export-oriented and non-export oriented firms will impact the US’s response
to the Brussels Effect.
Some progressive states in the US endorse EU’s leadership, voluntarily choosing to
incorporate EU regulations into their own state laws.181
Some developing country governments
179
See Macey, supra note 10, at 1359. See Majoras, supra note 39, at 15 (after criticizing the GE/Honeywell
decision, proposing to pursue greater international cooperation to avoid inconsistent decisions in the future. See also
Saqib Rahim, “U.S.-E.U. Showdown Over Airline Emissions Begins Today”, NYT (July 5, 2011) (discussing how
the Air Transport Association of America is urging global climate action in the wake of the EU’s decision to include
foreign airlines into its ETS. The ATA endorses a non-binding international emissions agreement within the UN’s
International Civil Aviation Organization). 180
See, for instance Helen Milner, RESISTING PROTECTIONISM: GLOBAL INDUSTRIES AND THE POLITICS OF
INTERNATIONAL TRADE (1998) (discussing the divergent interests of exporting and non-exporting firms) 181
For California, REACH can be described as having been both a catalyst and a resource for regulatory reform. See
discussion in Scott, supra note 74, at 898. See also discussion in Pohl, supra.
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regard the Brussels Effect as an opportunity to outsource their regulatory pursuits to a more
resourceful agency. Developing country antitrust agencies often free ride on the EU’s antitrust
investigations, benefiting from the global effects of the EU’s decision to ban anti-competitive
mergers or force firms to amend their conduct and products globally. The countries with the
desire, but limited resources, to provide safer products for their consumers benefit from the EU
imposing strict standards that affect production patterns globally. US consumers who prefer
higher levels of consumer protection and a civil society that advocates environmental protection
often seize EU policies and use them in their attempts to forge change in the US.182
These
groups welcome the EU’s unilateralism, hailing the EU as the benevolent provider of global
public goods in situations where their own countries or multilateral cooperation mechanisms fail
to provide them.
Multinational US corporations can also have a mixed reaction to EU regulation. When
trading across the common market, they benefit from facing a single EU standard instead of 27
different national standards, even if that standard was higher than the average standard before the
upward harmonization took place in the EU. The US corporations can also seize business
opportunities in third markets in situations where the EU bans certain products or production
methods domestically but where there is still demand for those products in third markets. In
these markets where the Brussels Effect has failed to take hold, US producers are likely to face
less competition from EU producers.
Finally, the EU provides a forum for US producers to challenge their competitors’
practices. REACH allows interested parties to submit proposals to restrict the use of certain
chemicals. This allows any producer of chemicals, including a US company, to seek denial of
their competitors’ (including domestic competitors) substances in the EU.183
In the antitrust
realm, the US corporations have found the EU a valuable legal battle ground and frequently
engage in forum shopping when they seek to halt practices of their (often domestic) competitors.
The US-based United Technologies was the principal complainant in the GE/Honeywell merger
investigation (after having lost its acquisition bid to GE). It was also a US company that brought
charges against Microsoft in the EU, knowing that it was more likely to obtain remedies in the
EU, which harbors a broader notion of what constitutes anti-competitive conduct. As the tables
turned, Microsoft lodged an antitrust complaint before the European Commission against
Google.
182
See Young, supra note 20, at 474; For instance, while the EU rules on GMO food has not led to a regulatory
change in the US, the dispute surrounding the issue has heightened domestic debates on potential downsides of
biotechnology. Civic interest groups have seized the issue and used it to promote regulatory change domestically.
Similarly, some American consumers are content that web operators cannot place cookies—software files that track
consumer’s internet searchers to gather marketing information—on personal computers. See Regulatory
Imperialism, supra note 1; Otto Pohl, European Environmental Rules Propel Change in U.S., N.Y. TIMES, July 6,
2004: Scott, supra note 74, at 920-928 (discussing how US-based NGOs, including Environmental Defense Fund,
have used REACH to advocate domestic reform). 183
This is particularly valuable if a chemical company can show that it produces a safer alternative compared to its
competitor’s “substance of very high concern”, as this would lead to automatic denial of the competitor’s substance.
See discussion in Scott, supra note 74, at 930.
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3. International Institutions
At times, international institutions have provided the most effective venue to challenge
the EU regulations. The WTO law prevents countries from restricting imports from countries
with less stringent regulations unless the importing country can provide a scientific justification
for the restriction or if the restriction is necessary to protect public health or related to
conservation of the environment.184
These exceptions are subject to specific conditions to ensure
that countries do not use them as disguised forms of trade protectionism. Much of WTO
litigation therefore centers on the parties’ disagreement as to whether domestic regulations
reflect a legitimate exercise of domestic regulatory authority or whether they serve protectionist
goals and hence constitute impediments for international trade.
The US did resort to the WTO in challenging the EU’s prohibition on GMO food and
hormone treated beef, eventually winning both trade disputes.185
The US claimed that the EU’s
alleged pursuit of food safety and concern for the health of its consumers in reality reflected its
desire to protect its farmers from foreign competition. The EU defended its measures on grounds
of genuine consumer preferences, which in Europe reflect deep skepticism of GMOs and growth-
promoting hormones,186
and argued that scientific studies supported its health concerns. The
WTO ruled for the US, urging the EU to lift its import ban of hormone-treated beef and similarly
approve GMO products without “undue delay.” Most recently, the US has challenged the EU’s
import ban of US poultry that is rinsed in chlorine—a process which, according to the US, makes
poultry safe for consumption.187
These challenges suggest that the WTO should, indeed, impose
some limits on the EU’s regulatory pursuits.
Despite these victories, the WTO offers, at best, imperfect remedies. The WTO dispute
settlement mechanism is characterized by weaknesses such as non-retroactive damages. In
addition, the WTO system cannot compel a member state to lift its restrictive measures. It can
merely authorize sanctions against a non-compliant member state. For instance, the EU has
maintained its import-ban on hormone-treated beef, preferring to endure US’s retaliation.188
The
EU has also repeatedly allowed the deadline for implementing the GMO-ruling to lapse, while
the US has suspended its retaliatory measures in anticipation of settlement or the EU’s future
184
Art XX of the GATT. 185
See Appellate Body Report, EC Measures Concerning Meat and Meat Products (Hormones), WT/DS26/AB/R,
WT/DS48/AB/R, adopted 13 February 1998, DSR 1998:I, 135; Panel Report, European Communities – Measures
Affecting the Approval and Marketing of Biotech Products, WT/DS291/R, WT/DS292/R, WT/DS293/R, Add.1 to
Add.9, and Corr.1, adopted 21 November 2006, DSR 2006:III-VIII, 847. 186
See discussion supra, p 20-23. 187
See USTR Press Release of January 2009 “U.S. Files WTO Case Challenging EU Restrictions on U.S. Poultry
Exports”, available at http://www.ustr.gov/about-us/press-office/press-releases/2009/january/us-files-wto-case-
challenging-eu-restrictions-us-p 188 See Renee Johnson and Charles E. Hanharan, The U.S.-EU Beef Hormone Dispute (Congressional Research
Service, December 6, 2010 ). The EU has further continued to gather scientific evidence to justify its import ban and
challenged the US retaliation. After another round of WTO litigation and a mixed and inconclusive Appellate Body
ruling, both the EU’s import-ban and the US’s retaliation remain in force. See USTR, “WTO’s Appellate Body
Vindicates Continued U.S. Imposition of Sanctions after the EU Claimed Compliance in the EU-Hormones
Dispute,” (October 16, 2008).
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compliance.189
These difficulties the US has faced in obtaining EU’s compliance suggests that
the WTO provides even less relief for the EU’s less powerful trading partners. Authorizing a
small developing country to punish its powerful trading partner hardly guarantees that this right
will be used. Thus, retaliation rarely provides an effective remedy outside of attempts by
powerful countries (such as the partially successful US) to constrain the EU.
The WTO’s ability to constrain individual countries’ regulations is further limited by its
restricted mandate. Many areas such as antitrust and privacy do not fall within the purview of
the WTO rules and its dispute settlement mechanism.190
There have been several attempts to
include antitrust, among other new issue areas, under the WTO framework. All those attempts
have failed.191
And expanding the scope of the WTO to new issue areas is even more unlikely
today as the consensus among over 150 countries that rarely agree on the content of the rules is
increasingly beyond reach.
Indeed, the WTO does not only fail to adequately constrain the Brussels Effect; at times it
may even help to facilitate it. The WTO rules limit the ability of the EU’s trading partners to
respond to EU regulatory pursuits with unilateral retaliation. Had the US, for instance, imposed
trade sanctions on the EU when faced with the EU’s data transfer ban, it would have violated the
WTO rules and subjected itself to a WTO complaint by the EU. In this sense, the WTO can also
provide a shield and not only a limitation for the Brussels Effect.192
B. Internal Constraints
The above discussion shows that the ability of other states or international institutions to
constrain the EU’s regulatory power is limited. Instead, the greatest check on EU’s regulatory
power comes from within the EU itself. The discussion on the precise conditions required for
the Brussels effect to take place sets important limits on the EU’s unilateralism. The growing
diversity and discord within the EU will further constraint the EU’s ability to promulgate new
laws that could be externalized—whether unilaterally or though political harmonization. Thus,
in as much as the emergence of the EU’s external regulatory agenda was a product of its internal
ambitions, the limits to its external influence are similarly set by its internal agenda.
1. The Missing Supply and Demand Conditions
The preconditions for unilateral regulatory globalization outlined above set important
limits to the scope of the Brussels Effect. Insufficient market power sets boundaries on the EU’s
global regulatory clout. For instance, the EU’s attempts to deny market access to fish caught
unsustainably has not triggered a Brussels effect since exporters have been able to sell their catch
189
See Charles E. Hanrahan, Agricultural Biotechnology: the U.S.-EU Dispute, Congressional Research Service,
April 8, 2010). And even if the EU was to comply, access of GMOs to its markets would remain limited. The WTO
only ruled on the EU’s moratorium for authorization of GMOs. The EU’s strict requirements on traceability and
labeling of GMO products remain intact, considerably limiting the producers’ ability to penetrate the European
market given EU consumers’ distrust in GMO-foods. 190
On privacy, see the general exception clause in Article XIV of GATS, which explicitly authorizes states to
restrict trade to “protect the privacy of individuals”. See discussion on this in See Schaffer, supra note 54, at 46-55. 191
See Bradford, supra note 159. 192
See Schaffer, supra note 55, at 54-55.
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in other markets.193
The EU’s limited market power with respect to GMOs was discussed above
when explaining why the Brussels Effect has been incomplete. The EU has been even less
effective in externalizing its regulations of automobiles to the US. For instance, the EU’s End-
of-life Vehicles Directive,194
which regulates recyclable components and toxic heavy metals
contained in automobiles, has had an insignificant impact on US car manufacturers, who sell
virtually no cars to the EU. At the same time, EU regulation has been successfully externalized
on Korean and Japanese manufactures.195
In instances where adjustment costs are high and
alternative markets exist, producers are likely to forgo the EU market and divert trade elsewhere.
Further, EU powers derived from market access are limited to imposing product
standards for goods that are exported to the EU or, for the same reason, to prohibiting anti-
competitive conduct that has an effect on the single market. These regulations can be contrasted
with the EU’s failed attempts to export its standards for management of hazardous waste. Strict
standards for waste disposal are costly for domestic producers. Illegal transfers of hazardous
waste remain common as producers have an incentive to evade regulations and find jurisdictions
that do not enforce waste management standards. Waste is movable and producers gain nothing
by trying to dump it in Europe. The EU has no leverage over this area unless it can monitor
these flows and ban products that involve unsustainable waste management practices. Regulatory
power is much harder to project externally when it consist of attempts to unilaterally limit
exports to third countries versus preventing imports to one’s own market.196
In some areas, the EU’s market power is altogether irrelevant. First, the EU has little
leverage over targets of regulation that are not subject to market access. Consider human rights,
an area in which the EU has both regulatory capacity and a strong preference to pursue high
levels of protection. But the EU has not been particularly successful in exporting its human
rights norms or democratic values outside of its direct sphere of influence, such as countries in
North Africa.197
This questions the view that the EU’s “normative power” has universal appeal,
leading countries to adopt EU’s norms and standards voluntarily. In the end, the EU derives its
power from its ability to offer conditional access to its markets. Signing a human rights treaty
can be a condition for a trade agreement with the EU.198
Enforcing it is another matter. It is
193
See Carr & Scheiber, supra note 77, at 76–79; Kate O’Neill, Globalization and Hazardous Waste Management:
From Brown to Green, in DYNAMICS OF REGULATORY CHANGE: HOW GLOBALIZATION AFFECTS NATIONAL
REGULATORY POLICIES 156–58 (David Vogel & Robert A. Kagan eds. 2004). However, the EU’s denial of market
access may still affect the global market price as the total demand is curtailed and the fish is sold in an alternative
market, possibly at a lower price. 194
Directive 2000/53/EC of the European Parliament and of the Council of 18 September 2000 on end-of-life
vehicles. 195
See Schapiro, supra note 52, at 14. 196
See O’Neill, supra note 86, at 156–58. 197
See Zielonka supra note 56, at 478. 198
The WTO recognizes very limited rights for any country to limit imports based on human rights violations in the
exporting country. See Article 20 of the GATT Agreement, which lists violation of “public morals” or the “use of
prison labor” as grounds for derogating from free trade. In contrast, protection of health and environment are
explicitly listed as grounds for departing from WTO obligations. The EU has, however, included human rights
provision in its bilateral trade agreements and regularly conditions any country’s GSP-status (GSP refers to
“Generalized System of Preferences or the “GSP” program) on these country’s agreement to ratify international
conventions on human rights and subscribe to labor standards endorsed by the EU. See also Emilie Hafner-Burton,
Trading Human Rights: How Preferential Trade Agreements Influence Government Repression, 59 IO 593 (2005)
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much easier to deny market access to a product that does not meet EU standards or to ban a
transaction that has an effect on the EU market, than it is for the EU to police international
practices that involve individuals who never enter the European market.
Second, the EU is sometimes constrained by its limited regulatory capacity. The EU only
has regulatory competence in any given area if the Member States have granted it such
competence. However, this is a largely theoretical limit since the EU has, over the years,
acquired extensive regulatory capacity in all areas relating to the single market. And these are
the very regulations that carry the attributes that lend themselves to externalization. However,
there are important policy areas where EU member states have not transferred powers to the
EU—including energy policy and corporate taxation—imposing limits on the EU’s external
influence in these matters.
The EU also fails to become the source of global standards in areas where the regulatory
propensity—the preference for high standards—is absent. This can be true EU-wide, where all
or most member states share a preference for low regulation. Often the missing regulatory
propensity, however, reflects preference heterogeneity within the EU. Online gambling is an
example of an area where harmonization within the EU has failed, the UK being hospitable to
online gambling while countries like Germany and France resisting legalization in an attempt to
protect their state monopolies on gambling.199
The EU is also divided on questions like
corporate tax harmonization with countries like Ireland (with its 12.5% corporate tax rate)
opposing any step towards tax harmonization and countries like France (with its 34% corporate
tax rate) endorsing common rules.200
And when it comes to financial regulation of any kind, the
UK’s opposition is almost guaranteed. 201
EU’s regulatory clout is also limited in instances where other states have a preference for
higher standards. At times, the US prefers higher standards than the EU does. For instance, the
US’s Sarbanes Oxley Act of 2002, targeted at improving corporate responsibility in the post-
Enron environment, is widely perceived as establishing the highest standard for corporate
governance.202
Another manifestation of the US’s preference for strict financial regulation is the
Dodd-Frank Act.203
Where the US opts for strict standards, it can become the source of global
standards, assuming the conditions for unilateral regulatory globalization are met. As the US’s
recent regulatory pursuits have predominantly targeted the financial sector, it is less evident that
199
See Bach & Newman, supra note 64, at 33-36. 200
See “European Plan to Introduce Corporate Tax plan”, NYT (March 16, 2011) and “EU Corporate Tax Plan
Deals Blow to Irish”, (March 16, 2011), available at http://www.euractiv.com/euro-finance/eu-corporate-tax-plan-
deals-blow-irish-news-503158 (discussing the “common consolidated tax base” that was recently put forth by the
Commission): see also Tax Wars: New versus Old Europe, THE ECONOMIST (July 22, 2004.) 201
Id. 202
Sarbanes–Oxley Act of 2002, Pub.L. 107-204, 116 Stat. 745 (July 30, 2002). However, while the SOX is
considered to be the highest standard, the US’s regulatory leverage over the EU was somewhat diluted by the EU’s
objection to subjecting its firms’ auditing to the oversight by the Public Company Accounting Oversight Board
created by the SOX. After negotiations, the US conceded that EU regulators can retain authority over auditing
questions. The US also agreed that the EU can use international as opposed to US accounting standards in the US.
See NEWMAN, supra note 116, at146. 203
Dodd–Frank Wall Street Reform and Consumer Protection Act, Pub.L. 111-203, H.R. 4173 (July 21, 2010).
Given the current state of flux of European financial regulation, it is not clear how the US and the EU will compare
in terms of the relative stringency of their banking and other financial regulations.
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they are converted to global standards because of the relative elasticity of capital. For instance, it
is debated whether the Sarbanes Oxley regulation ratchets up standards worldwide or whether it
causes the US stock exchange to lose listings of foreign corporations.204
In any event, it is
evident that the EU’s ability to set the global rules alone is always contingent on it having a
preference for the highest rule, which may not always be the case.
In addition to the situation where the relatively permissive EU standard yields to a stricter
foreign standard, there may also be situations where one country is stricter on some dimension of
a regulation whereas another country can be stricter on some other dimension. In instances
where the corporations are unable to segment the markets, corporations may thus end up
adhering to even stricter standards than any single regulator would have required. This situation
would be an even more penetrating version of unilateral regulatory globalization, where the
global rule would be ratcheted up by a combination of the strictest rules provided by different
jurisdictions.
Further, the EU’s leverage is compromised in the case of regulation of more elastic
targets, including capital, as noted above. For instance, in the wake of the Euro crises, the EU
has proposed to impose a tax on financial transactions. This proposed tax would cover a broad
range of financial transactions between banks and other financial institutions, including
securities, bonds, currency transactions and derivatives.205
However, the EU knows that the
introduction of this tax would likely divert trading activity to financial centers outside the EU.
Unable to unilaterally impose this tax globally, the EU is pursuing political harmonization in the
G-20.206
Yet examples of elastic targets can be found outside of capital markets as well. The
European Court of Justice’s recent denial of the patentability of human cells is unlikely to lead to
a global standard.207
The critics claim that the EU’s stringency only drives stem cell research
and business out of the EU, highlighting the mobility of the industry. 208
204
See Bob Sherwoord, Long Arm of the US Regulator, FT (March 9, 2005); John C. Coffee: Racing Towards the
top? The Impact of Cross-listings and Stock Market Competition on International Corporate Governance, COLUM.
L. REV. 102(7) (2002). A related question is whether the availability of securities class actions in the US deters
foreign companies from listing on a US exchange. See Interim Report of the Committee on Capital Markets
Regulation (November 30, 2006) at 11 (noting that “foreign companies commonly cite the U.S. class action
enforcement system as the most important reason why they do not want to list in the U.S. market.”). 205
See Joshua Chaffin, Business attacks transaction tax plan, FT (September 28, 2011). The tax would apply as
long as “one party to the transaction were established in a Member State of the EU and that a financial institution
established in the territory of the Member State concerned was party to the transaction”, See European Commission,
Common Rules for a Financial Transaction Tax – Frequently Asked Questions MEMO/11/640 (September 28,
2011) 206
See Common rules for the financial transaction tax, Id.; The financial transaction tax is an example where the
other conditions for the Brussels Effect are also missing: the EU currently lacks the regulatory competence
(capacity) to impose this tax; the required regulatory propensity is also missing as the UK opposes the proposal.
There are also alternative markets for trading activity, reducing the EU’s leverage. Finally, the tax is also divisible
in the sense that all jurisdictions do not have to apply the same tax but retain their autonomy to regulate trades in
their jurisdictions. 207
C-34/10 Oliver Brüstle v Greenpeace e.V., OJ C 100/19 (2011). 208
See “Scientists fear stem cell ruling deals blow to EU research” EurActiv (October 20, 2011)
http://www.euractiv.com/health/scientists-fear-stem-cell-ruling-deals-blow-eu-research-news-508404
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Also, when products do not call for a uniform standard e.g., when markets are divisible or
scale economies insufficient to justify a uniform standard, the EU can, at best, achieve
compliance with its standard but not globalization of those standards. This is true with respect to
labor laws, as discussed above. Another example comes from the antitrust domain. In 2007, The
EU launched an antitrust investigation into whether Microsoft’s practice of offering its Windows
software with only one Internet browser, the Microsoft-owned Internet Explorer, presented
antitrust concerns. In response, Microsoft presented Windows 7 E, a Europe only version of
Windows that came with no Internet browser.209
Several other products are also divisible across
the markets. Car manufacturers are responding to different national and regional emission
standards with diversified technologies in an effort to minimize risks and maximize returns.210
DVDs offer another example. They have different region codes allowing film distributors to
segregate release dates, content restrictions and price across regions. Patent protection,
discussed above, is also divisible: the EU’s ability to impose its rules on the patentability of
human cells is constrained not only by the mobility of research firms but also by the ability of
these firms to continue filing patents in other jurisdictions. Thus, the Brussels Effect is unlikely
whenever the firm’s costs of customizing its conduct or production to different rules are low.
2. Internal Conflicts and the Growing Diversity
Not everyone within the EU benefits from its aggressive regulatory stance. EU
consumers, who value access to cheap imports, may occasionally question whether the higher
product standard justifies the higher cost products, in particular in challenging economic times.
Some EU corporations may also find that excessively high regulatory standards are unsustainable
for the European economy. They argue that excessive reliance on the precautionary principle
may slow economic growth and innovation,211
and prices EU firms out of critical export
markets.212
Some companies in the EU might have benefited from the unlevel playing field and
lax regulations in markets where the Brussels Effect has not taken hold. European companies
have increased their FDI, and established themselves in third markets from which they import
into the EU. As a result of externalization of the EU standards, they can no longer reap gains
from lower production costs that drove them to those markets in the first place. In addition,
European companies whose competitiveness depends on their access to cheaper foreign inputs
are hurt when those foreign imports are subjected to more burdensome regulations. Since
approximately half of international trade consists of trade in intermediate goods, it is difficult to
identify exactly who is winning and who is losing when one country is regulating multinational
corporations with world-wide supply chains. Thus, voices within the EU may join those outside
to call for reining in the excesses of its regulatory accomplishments.
As the EU’s powers grow, divisions within the EU also grow. It becomes harder for the
EU to pass new regulations amidst the growing heterogeneity of its population. One salient
209
See Emil Protalinski, Windows 7 to be shipped in Europe without Internet Explorer, ONE MICROSOFT WAY (June
11, 2009),
http://arstechnica.com/microsoft/news/2009/06/windows-7-to-be-shipped-in-europe-sans-internet-explorer.ars. 210
See, for instance, http://www.kpmg.de/docs/transformation-automotive-industry.pdf 211
See Kogan, supra note 52, at 94. See also Leo Cendrowicz, “Is Europe Finally Ready for Genetically Modified
Foods?” , Time (March 9, 2010). 212
See discussion supra, noting that the Brussels Effect is expected to be less likely when the EU is a net exporter of
certain products. These companies take little comfort that the playing field in their home market is level.
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example is that the EU has been unable to create a common energy policy despite the EU
member states’ collective vulnerability to energy insecurity.213
Enlargement magnifies this
problem as preferences within the EU become more diverse while the EU institutions fail to
adjust to more complex decision-making.
There is also great disparity among the EU governments on what the EU’s global role
ought to be and how the EU should exercise its power. All other powers have internal conflicts,
yet the EU’s decision making is always subject to two potential veto points: support for any
given policy must first be garnered at the level of the member states, followed by the EU.214
At
the same time, the internal constraints have at times been a source of power for the EU. Because
of the visible internal divisions and resulting constrains in its mandate, the EU has been able to
obtain more concessions in international trade negotiations than it would have had it been able to
gain approval for trade deals through majority voting.215
In pursuing negotiated harmonization,
this internal conflict can be a source of strength. But the EU’s ability to unilaterally externalize
its internal market hinges on its ability to first agree on the internal rules capable of being
exported.
Today, the EU faces a distinctive challenge to its authority. The concurrent deepening
and widening of the EU’s agenda has already created severe constitutional crises within the EU,
with the difficulties surrounding the euro further testing the limits of solidarity within the union.
The great political divide in Europe today is not between the right and the left but between those
who are turned inwards and those who embrace globalization and further integration. The
former would scale back the powers transferred to the EU in the name of reinstating the
sovereignty of European nations. Fearful of these demands, even the integrationists are growing
more timid in their calls for expanding EU powers at the expense of national sovereignty. More
European regulation means less sovereignty. And less sovereignty means more unpredictability
and loss of control akin to the crises surrounding the common European currency. Thus, the
growing gap between these different visions within Europe for Europe, in the end, presents
perhaps the greatest challenge to the European external regulatory agenda.
CONCLUSION
This paper has highlighted the unprecedented global power that the EU is exercising
through its legal institutions and standards that it successfully exports to the rest of the world via
the Brussels Effect. Without resorting to international institutions or seeking other nations’
cooperation, the EU is able to promulgate regulations that become entrenched in the legal
frameworks of developed and developing markets alike, leading to the “Europeanization” of
important aspects of global commerce.
This discussion has been descriptive, intentionally omitting the normative inquiry on
whether the Brussels Effect is socially desirable. It seems evident that corporations are not
necessarily adjusting to EU standards because of the prospect of mutual gains or some Pareto-
213
See Laidi supra note 27, at 19. 214
See Meunier & Nicolaidis, supra note 23, at 907–08. 215
See id at 909; Robert D. Putnam, Diplomacy and Domestic Politics: The Logic of Two-Level Games, 42 INT’L
ORG. 427, 427–60 (Summer, 1988). IO,
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improving outcome. If existing regulations in other jurisdictions are optimal, the Brussels Effect
is likely to lead to inefficiently high overall global regulation, adversely affecting global
welfare.216
But The Brussels Effects may also lead to an efficient outcome. If existing
regulations in other jurisdictions are too permissive or weakly enforced, unilateral regulatory
globalization might be a desirable means of overriding sub-optimally low regulations elsewhere.
The overall welfare effects of this phenomenon are thus difficult to disentangle.217
The Brussels Effect may also raise concerns of democratic accountability. The idea that
unelected European civil servants have the ability to block global transactions by US companies
can be disconcerting to those involved. However, others might claim that the Brussels Effect
does not undermine domestic democracy in the US. The EU’s regulatory reach may have the
effect of balancing the overrepresentation of business interest in the public life in the US by
empowering consumers.218
These are some of the normative questions that this paper raises but
intentionally leaves for others.
The acknowledgement of the existence and influence of the Brussels Effect has
implications on how we think about power and the question of who is powerful and why. If you
were to ask national security experts whether the EU is powerful, they would probably say no. If
you were to ask economist whether the EU is powerful, they would probably discuss how the
relative power of the EU is diminishing with the rise of China. But if you were to ask GE,
Microsoft, Google, Monsanto, Dow Chemical, or Revlon whether the EU is powerful, the answer
would be a resounding (and likely bitter) yes.
One key question is what type of power matters today. Much of international relations
discussion has until the recent past been preoccupied by the traditional notion of military power.
Yet the utility of military power is declining.219
Economic concerns usually prevail over military
imperatives. The EU is making a conscious choice of not building a powerful military—it rather
free rides on the US’s use of it. For instance, the EU’s ability to influence central and eastern
European countries was significantly enhanced by the level of security and stability that existed
there, thanks to US military power.220
Military free riding allowed the EU to devote its resources
on other activities, including promoting its rules and standards in eastern European countries,
instead.
While the currency of international politics is increasingly economic power, its
possession is difficult to translate into concrete forms of influence today. Economic power used
to be associated with the US, the EU, and Japan. Today, economic power is more dispersed as
China and other emerging economies are growing in affluence. In the world of multiple powers
216
We would also need to understand whether the possible costs of excessively strict global regulation outweigh the
costs of having divergent, even if individually more optimally tailored, national regulations. 217
Similarly, the EU’s unilateralism can be thought to fill the void where collective action problems prevent
countries from reaching efficient outcomes through treaties. Yet the failure to cooperate multilaterally may also be a
sign that international agreement would not be welfare enhancing, questioning the desirability of the EU providing a
global regime alone. 218
See Robert O. Keohane, Stephen Macedo, Andrew Moravcsik, Democracy-Enhancing Multilateralism, IO 63,
pp. 1-31 (2009)(discussing how multilateral institutions can enhance domestic constitutional democracy). 219
See Leslie Gelb, GDP Now Matters More than Force, FA, November/December 2010. 220
See Zielonka supra note 56, at 482.
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and heterogeneous interests, exercise of unilateral economic power is rarely possible. The
inability to conclude the WTO trade talks is one reminder that in the world where many are
powerful, nobody alone is powerful enough to get anything done. Economic sanctions are rarely
successful today because embargoed nations have an easier time finding alternative suppliers or
markets for their products. Conditional aid and other rewards, traditionally used by powerful
nations and institutions like the World Bank and International Monetary Fund as means of
leverage, are decreasingly effective as countries like China are prepared to extend aid to rogue
and needy countries—no strings attached.
When power is defined in terms of the actual influence that a country can wield, the EU’s
ability to penetrate vast areas of global commerce is relevant. Contrary to traditional contours of
influence, the Brussels Effect captures a phenomenon where the EU does not have to do anything
except regulate its own market to exercise global regulatory power. The size and attractiveness
of its market does the rest. By virtue of being the world’s largest trading block, the EU can
dictate what is traded. It is one of the few areas of influence where unilateralism still works.
Regulatory power is a less costly, more deployable and more durable type of power. Also,
unlike other forms of power, it cannot easily be undermined by others.
Another advantage of regulatory power is its ability to generate leverage that has the
greatest impact with the lowest political profile. Many of the regulations appear technical but
often have major implications on countries, corporations, and consumers around the world.
Conflicts over regulatory power rarely elevate to the political level. Trade is a much less
controversial way of pursuing foreign policy objectives in particular when the EU can always, in
principle, offer the choice of not complying with its rules. Subscribing to EU rules is the price of
trading with Europe. All the EU is doing is exercising its right to protect its own consumers.
This is a less controversial position to take compared to a regime change pursued in the name of
laudable goals such as democracy or human rights. Thus, in falling between coercion and
cooperation, regulatory power strikes a balance of legitimacy and potency that makes it a more
efficacious option than its alternatives.
The EU’s regulatory clout shows that the EU can be a superpower without a super state.
It is a shrewd and influential actor that projects its values and makes the world to its liking by
playing to its strengths. While the EU portrays itself as a champion of multilateralism, it is
selectively supporting multilateralism in areas where it lacks unilateral power. The more the EU
bolsters the authority of the UN Security Council, the more the EU can constrain the exercise of
unilateral power by the US. But when it comes to the regulation of global markets, the EU can
go it alone, and is hence less concerned about pursuing multilateral, institutional cooperation.
The discussion also challenges the primacy of the narrative that the EU is a “normative
power” that leads by example. The EU is often viewed as a power that relies on persuasion to
change “hearts and minds” and thereby the preferences and identities of other actors. The EU is
regularly portrayed as a new type of power that steers away from coercion and relies instead on
positive incentives and soft power.221
This paper has not argued that those propensities of
221
See Hugh Richardson, Head of the Delegation of the European Commission to Japan, Speech at Waseda
University ‘The European Union and Global Governance’ symposium: Smartening the EU’s Soft Power (May 16,
2008).
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influence are not within the EU’s repertoire of influence. Yet this paper has focused on what is a
vast, unappreciated, and perhaps the most controversial aspect of the EU’s global role: the EU’s
unilateral employment of tools of soft coercion that go against the preferences of its trading
partners.
An understanding of the existence and the full impact of the Brussels Effect is likely to
influence the perception of the EU by its trading partners. But it is also likely to change the
perception of the EU within the EU itself. Acknowledgment of the EU’s global regulatory
power might give pause to both the EU’s relentless critics, who emphasize the EU’s weakness
and irrelevance, as well as to its most ardent defenders, who call for increasing integration and a
gradual move towards a federation that allows the EU to rise to global prominence. For the
critics, the discussion has shown that to portray the EU as powerless focuses on a narrow and
outdated vision of what power and influence means. For the defenders, the discussion has shown
that the need to move towards a federation is probably not as pressing given the extent to which
the EU is already able to advance its interests, within and beyond its borders.222
The EU is
already a superpower and, importantly, a superpower of a meaningful kind.
222
See also, arguing in this spirit, LEONARD, supra note 67.